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Bank share price losses may keep the ASX from touching the 6000 level in May

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ANZ’s poorly-received result on Tuesday and the start of a traditionally poor month for the big banks may leave the S&P/ASX200 index agonisingly short of the 6000-point mark.

Australia’s big four banks have been key to the S&P/ASX200 rally that on Monday took the index within 44 points of the much-anticipated threshold – which the index hasn’t touched since 2007 despite coming close four times.

If investors are counting on the banks to help take the index over the line, they might be disappointed. If investors are counting on the banks to help take the index over the line, they might be disappointed. Photo: Paul Rovere

But if investors are counting on the banks to help take the index over the line, they might be disappointed. The big four, which together make up 28.9 per cent of the ASX200 by market capitalisation, have underperformed the market every May for the past 17 years. 

Taking every year since 2000, they’ve lost, on average, 1.6 per cent in the month, compared to an average ASX200 drop of 0.7 per cent in May over the same period. It’s unlikely the ASX200 can get to 6,000 if the banks are dragging it down.

ANZ shed 2.4 per cent at the open on Tuesday after its interim profit results disappointed.

ANZ’s poor showing on Tuesday was driven by “a messy result with a lot of lumpy items”, as UBS banking analyst Jonathan Mott described it, after the bank came in below consensus earnings expectations by about 3 per cent.

NAB will report on Thursday, while Westpac will report next Monday. 

After their results, the banks tend to make dividend payments in May, which can pressure their share prices as yield investors tend to sell after stocks start trading without the attached right to the next dividend payment (known as going ‘ex-dividend’).

But the banks’ tendency to fall in May is greater than you would expect if it was all about investors taking the dividend and selling, wrote Bell Potter’s director of institutional sales Richard Coppleson, who has calculated the May underperformance for the banks every year since 2000.

The share prices of all four big banks have fallen in May in six of the past 10 years. Last year, ANZ and CBA traded in the black, while CBA held its ground in 2014. But you have to go back to 2009 to find another year where a single one of Australia’s big four banks traded up in May.

On average, Westpac has declined 3.7 per cent in May since 2000. For ANZ, the figure is 2.6 per cent. NAB and CBA had strong May performances in the early 2000s, sending them narrowly in the red, losing 0.7 and 0.6 per cent respectively on average during the past 17 years. 

For the two worst-affected banks, Westpac and ANZ, “the last 13 years have been absolute shockers,” wrote Mr Coppleson on Monday. “Even though they go ex-dividend, they are dropping by far more than that.”

Those years, however, do take into account the global financial crisis, when the entire global financial sector took a hit, noted Atlas Funds Management’s chief investment officer Hugh Dive.”Then the banks ave had capital raisings a few years, which as well as the GFC does skew the data somewhat,” he said.

The market was pricing in good things from the banks this earnings season, which several fund managers pointed out left the banks vulnerable to disappointing expectations if they weren’t able to deliver.

All the majors rose strongly in the past four weeks. This is in keeping with historic trends, which show banks rise strongly in March and April ahead of their May reporting season (2.7 per cent and 2.5 per cent on average), and again ahead of the November season, when they rise 4.0 per cent on average. 

Mr Dive suggested investors were “buying the rumour” in April and “selling the fact” in May. 

One of the sectors that does outperform in May is the energy sector, which has risen 2.9 per cent on average in May since 2000. But with oil trending down in recent weeks, it’s hard to see this repeating this year, said Mr Dive. “If the banks are weaker, it’s easy to see a pull-back [in May],” he said.

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