The Commonwealth Bank of Australia (ASX: CBA) share price could be facing a tough FY23 after a Wall Street guru singled out ASX big bank shares are one group to short.
The doom and gloom forecast comes from Bank of America strategist Michael Hartnett. He pointed to the steep drop in Australian house prices for his prediction.
House prices here have fallen in August at the fastest pace in four decades, according to CoreLogic. Given that the CBA has the biggest exposure to mortgages, its shares could come under pressure over the coming months.
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Why are house prices on the nose?
Aussie home prices are on the decline as borrowers were caught off guard by the rise in interest rates. The Reserve Bank of Australia's cash rate jumped from record lows of 0.1% to 1.85% in just four months.
What's worse is that the RBA is likely to lift rates again by 50 basis points tomorrow. If that happens, it will take the cash rate to its highest level since December 2014.
Experts think house prices have further to fall as our central bank is unlikely to stop hiking rates anytime soon.
Michael Hartnett said:
There's certainly some appealing logic in the idea that where house prices go, the Australian banks – stacked to the gills with mortgages as they are – will follow.
Loss of market share also hanging over the CBA share price
What's more, the loss of mortgage market share is also pressuring the CBA share price. The home loan market is fiercely competitive and growth in new loans is slowing. Our largest lender is forecasting growth of just 3.5% in 2023, which is below the industry's growth rate.
Other big ASX bank shares are also likely to be losing ground compared with smaller non-bank lenders.
CBA share price catching short sellers' attention
But traders may not be waiting for Harnett's advice to short the likes of the CBA share price. The bank seems to have already caught the attention of short-sellers.
The percentage of CBA's shares that have been shorted stands at 1.18% as of 30 August 2022. That is the latest figures from ASIC, which is always a week behind.
You will be right if you thought that doesn't sound like much. After all, the most shorted ASX share is Flight Centre Travel Group Ltd (ASX: FLT) at 15.5%. A short sale is a bet by traders that the share price of the security will fall.
But CBA's 1.18% figure represents a near 200% increase in shorts since the start of this calendar year.
Most shorted ASX big bank share
Further, the CBA share price is the most shorted among the big four ASX banks. While Westpac Banking Corp (ASX: WBC) is only a touch behind at 1.17%, short positions have only inched up 7% in contrast.
The percentage of shorts against National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) only stand at 0.91% and 0.33%, respectively.
CBA share price not a one-way bet
However, before you jump on the short-selling bandwagon, be warned that this may not necessarily be a profitable trade.
Falling house prices may crimp growth for ASX banks, but credit quality and net interest margins are also important drivers for the sector.
On that front, credit quality remains strong due to the robust jobs market and rising rates will bolster margins.
