Shares in Westpac Banking Corp (ASX: WBC) are edging forwards today and now trade 0.43% in the green at $23.59.
Westpac shares have staged a remarkable recovery in the past week having bounced off an 8 March low of $21.67. Even better, they have bounced off a low of $20.30 on 31 January.
In fact, Westpac is now leading the other banking majors in 2022 and has a consensus analyst price target of $26.96, according to Bloomberg Intelligence.
What tailwinds are behind Westpac shares?
Looking at the wider sector, ASX financials have clawed back gains in 2022 after whipsawing in gut-wrenching volatility over the past two to three months.
In that time the S&P/ASX 200 Financials Index (ASX: XFJ) has traded as high as 9% and as low as 8% before regaining strength once more.
The trend has looked similar to Australian large caps in the benchmark S&P/ASX 200 Index (ASX: XJO). However, as we've entered March, the sector has broken away from the large end of the market.
Westpac itself is now up more than 10% this year to date, and investors continue rallying the Westpac share price ahead of other banking majors at the time of writing.
What the analysts are saying
Much of the sector-specific tailwinds are centred around the debate of inflation and interest rates, according to Bloomberg economist James McIntyre.
Higher inflation is sure to impact household budgets, the economist says, meaning the Reserve Bank of Australia (RBA) will have to tighten its policy "a lot sooner to contain these pressures," by raising base rates.
Doing so would involve a pull-through into the mortgage and credit markets, McIntyre notes, meaning Aussie banks will see more income fed down into their bottom line as profit and free cash flow.
Fellow economist Leith van Onselen at MB Super suggests that if the discount variable mortgage rate were to rise by 215 basis points, this would translate to an increase in average monthly mortgage payments of 29% from February 2022 levels.
The impact would be felt even more by fixed-rate mortgage holders due for expiry over the next two years, most of whom were underwritten at rates of less than 2.5%, he says.
Analysts at Morgans recently noted that Westpac's share price looks cheap from what's on offer, valuing the bank at $29.50.
It also bakes in a nice dividend growth projection of $1.19 per share in FY22 moving up to $1.60 in FY23, a jump of 34% year on year if it comes true.
As such, the macro-level tailwinds that are benefitting the sector appear to be transposing to Westpac's share price as well, sending it further north.
Westpac is now leading each of the other banking majors in the big four, and is beating two banking/financials-specific ETFs listed on the ASX.
In the last 12 months the Westpac share price has fallen around 5% into the red. But it is up more than 10% this year to date.
