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Macquarie downgrades banks to ‘underweight’

Macquarie has downgraded Australian bank stocks to “underweight”, noting that the outlook for the sector appears more challenging.

The broker acknowledged that the banks remained well-placed to deliver their strongest pre-provision profit growth in over a decade, courtesy of rapid interest rate rises in 2022.

However, a strong earnings outlook appeared to be increasingly priced in expectations, and the risk of ongoing upgrades was diminishing, according to analysts.

“We see downside risk to earnings beyond the first half of 2023,” Macquarie analysts said. “Higher and persistent inflation and higher rates will likely result in lower asset prices, higher costs, and the risk of impairments.”

The broker expects the banks to underperform the market throughout 2023.

Macquarie’s order of preference is ANZ, National Australia Bank, Westpac and then Commonwealth Bank.