Stay Long Financials | Westpac – Healthy Capital Returns

10 August 2021


Global markets were mixed on Monday (US S&P 500 index -0.1%) as defensive sectors rallied, while slumping oil prices — due to fears that increasing COVID-19 cases and slowing growth in China would hit demand weighed on the energy sector.

Rising COVID-19 delta cases, weak oil prices and the potential for higher bond yields amid strong employment numbers, caused investors to step back. The US 10-year Treasury bond yield was up to 1.32%, helping the financial sector to a second day of gains (+0.3%).

The gold price experienced a tumultuous session, briefly touching as low as $US1684 an ounce before recovering. Strategists explained the precious metal’s decline since Friday’s US labour force report as an illustration of growing concern about a pullback in stimulus by the US Federal Reserve. Federal Reserve Bank of Atlanta President Raphael Bostic said the central bank should move to taper its asset purchases with another strong month or two of employment gains, and proceed with that scaling-back process faster than in past episodes. 

Europe's Stoxx 600 increased by +0.2% as the healthcare, utilities and technology sectors led the market to a record close.



Westpac (WBC:ASX / WBC:NZX)

Insurance and banking stocks supported the ASX yesterday, making up for falls across a broad range of sectors as earnings season moved up a gear.

Westpac shares added 1% after saying it will sell its Australian life insurance business to TAL Dai-ichi Life Australia in a deal worth $900 million. While not large in the scheme of the overall business, the transaction will add 0.12% to Westpac’s Level 2 common equity Tier 1 capital ratio – a measure of its financial strength monitored by the regulator.

We remain BUY rated on WBC given improving underlying earnings, excess liquidity, excess capital, and strong asset quality, which means it could return capital to shareholders, while paying out an attractive 4.8% dividend yield.

The re-emergence of COVID lockdowns has presented a near term risk, but a strong housing market, and largely supportive operating conditions with interest rates tipped to increase (even marginally) should support healthy net interest margins for WBC over the medium term 


Australia & New Zealand Market Movers

The Australian market (ASX 200 Index) ended flat yesterday with gains in financials (+1.3%) balanced by losses in materials (-1.1%). 

Suncorp shares led the market, soaring 7.8% after the company said its cash profit jumped 42% to $1.06 billion in the year to June 30. The company also announced an 8¢-per-share special dividend on top of a regular dividend of 40¢ a share, and a $250 million share buyback.

National Australia Bank (+0.9%) agreed to buy Citigroup's (+2.0%) Australian consumer business for about A$1.2bn approx. a $250 million premium to book value. 

Peabody Energy has reportedly reached preferred bidder status in the competition to buy BHP’s coal mining assets.

Transurban revealed the cost of building the West Gate Tunnel has blown out by about $3.3 billion, while reporting its statutory fiscal 2021 net profit soared a similar amount because of its sale of a 50 per cent stake in its US toll road operations. Excluding the discontinued operations, the company suffered a statutory loss of $287 million. Shares in the toll road operator fell -2% to $14.03.

The NZ Market (NZX 50 index) shed -0.5% on Monday, with EBOS dropping -2.2% and Z Energy gaining +1.6%.

NZ 10 year government bond yields rose to 1.66%, which saw tech stock which are more sensitive to higher long-term rates generally weaker, alongside ‘bond proxies’ such as utilities stocks. Utility stocks, such as Meridian Energy and Genesis Energy fell -1.8% and -1.9% respectively.

3 Things Markets will be Watching this Week

  1. Highlights this week include the latest​ inflation​​ prints in the US and China​.
  2. ​Earnings season across Australasia kicks into gear. Key names reporting this week include Aurizon, Suncorp, Transurban, Challenger, CBA, Computershare, James Hardie, IAG, Mineral Resources, Orica, ANZ Q1, AGL Energy, AMP, Downer, Goodman Group, Mirvac, QBE, Telstra and Precinct Properties.
  3. ​Ongoing commentary and reactions to the COVID delta variant remain in the headlines.​
Insurance and banking stocks supported the ASX yesterday, making up for falls across a broad range of sectors as earnings season moved up a gear.

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