The AFR is quoting a report from Endeavour Equity Strategy saying the largest regulatory credit crunch in 30 years could see Sydney and Melbourne house prices fall by 15 to 20 per cent.
UBS banking analyst Jonathan Mott recently said house prices are determined by the demand and supply of credit availability. If banks either can’t or won’t lend as much as they did 12 or 18 months ago, property prices must fall.
The Endeavour report urges caution when investing in the big four bank, mirroring the thoughts of The Capital Club. Just yesterday we said the party’s over for bank shares.
After a rugged day yesterday, in Thursday morning trade the bank shares are slightly higher. Westpac Banking Corp (ASX:WBC) shares are 12 cents higher to $29.33, Commonwealth Bank of Australia (ASX:CBA) shares are 22 cents higher to $73.93, ANZ (ASX:ANZ) shares are flat at $29.07 and the National Australia Bank (ASX:NAB) share price is up 4 cents to $28.02.
Given their weighting in the ASX 200, it will take more and longer than yet another bearish article on house prices to truly impact the bank shares.
My guess is it could be many years before investors buying at these prices will see a decent annualised return from bank shares.
Not surprisingly, Endeavour is bearish on the domestic economy. From an investing perspective, it favours a cash weighting above 10 per cent. It also favours companies with profits tied to the US economy, and select mining shares.
Although the article doesn’t have details, companies like CSL Limited (ASX:CSL), Altium Limited (ASX:ALU), Cochlear Limited (ASX:COH) and Aristocrat Leisure Limited (ASX:ALL) earn and/or report a fair chunk of their profits in the US.
As for mining shares, I’m on record as saying the BHP Billiton (ASX:BHP) share price could be on the way to $40. BHP shares are currently trading at around $35, close to a 52-week high.
For those who want to be their own financial advisor, my one size fits all portfolio has a 40 per cent weighting to the Vanguard Index International Shares Fund. Domestic exposure comes via the Firetrail Australian High Conviction Fund and two small cap funds, all of whom are likely to largely avoid Australian bank shares.