Commonwealth Bank is the latest to feel the wrath. · Getty
After years of heady rises and gravity-defying valuations, “cracks are staring to appear” in the Australian equities markets, analysts say. Commonwealth Bank was the latest high-flying bluechip stock to come crashing down this week.
Commonwealth Bank had nearly $30 billion wiped from its valuation on Wednesday. Its share price fell 10 per cent after posting a 4 per cent rise in profit to $2.7 billion for the quarter but said it was increasing provisions for bad debts.
For some of the biggest companies on the ASX, their precipitous falls lately, while driven by market updates, have raised concerns that Aussies investors – and the superannuation accounts of 19 million workers – are facing a looming, long-term technical collapse, says Filip Tortevski, a senior analyst at Wealth Within.
“The cracks for me are starting to appear, structurally, more so than just the one day move,” he told Yahoo Finance.
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Analysts were left scratching their heads last year when CBA stock hit $190 a share, putting the bank at a price to earnings ratio of more than 33 times – a greater multiple than many fast growing tech stocks in the US.
“Since 2020, it started to act like a tech stock and and that’s not normal,” Tortevski said.
“Right now we are we moving back to that rate of growth where it makes sense.”
He also pointed to healthcare giants CSL and Cochelar which have both faced struggles with their business and lost their shine as darlings of the ASX, each falling more than 65 per cent from their highs in the past year.
“This is probably in a similar vein to what’s happening with CSL and Cochlear right now. They’re reverting back to their long term sustainable rate of growth.
“And obviously everything else that’s going on with the economy – the slow growth and and all of that plays into it,” he added.
Commbank shareholders warned of 50 per cent fall
If the structural reset continues, Tortevski believe a 50 per cent decline from the recent highs is around the corner for Commbank shareholders this year.
“If it does move back and revert to what is a sustainable rate of growth, we’re looking at $100 to $95 [per share] on the way down,” he said.
He pointed to the ballooning funds in superannuation and the rise of the most popular ETFs as helping fuel some of the higher valuations ASX megacaps have enjoyed in recent years.
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“We’re just seeing money pour into the same stocks, which is very different to how the market was operating 5 to 10 years ago,” he said.
But now sellers are taking control.
“You do see a concentration of money flying in which is purely based more on momentum rather than real valuations. At some point the market’s going to realise this and reset itself. And I think we’re potentially at the start of that now,” Tortevski said.
Budget changes to CGT could inject ‘volatility’ into markets
Yet to be legislated changes announced this week in the Federal Budget to the tax treatment of capital gains has many in the industry expecting a move towards lower risk assets that produce higher yield, but Tortevski thinks removing the incentive to hold for at least 12 months will make investors quicker to panic sell.
“I think what it’s going to do to the market is it’s going to make it a lot more volatile. I mean, you’ve got to think now there’s no incentive to buy and hold a stock really,” he said.
With the removal of the 50 per cent tax discount on gains for shares held for more than a year, he believes investors will be much quicker to sell in a downturn, rather than holding through cycles and waiting for shares to bounce back in order to secure the tax benefits.
“There’s going to be a lot more short term trader participation and that will accentuate the volatility,” Tortevski said.
“So we might be seeing a shift now by investors thinking, well hang on a second. Maybe it is time to start to become active in the market and really take control … and sell well, and take the profits when they arrive.”
In the wake of Tuesday’s budget decision to whack shareholders who enjoy strong returns with a higher rate of tax, the CEO of the Australian Shareholders Association Rachel Waterhouse argued “tax changes should not discourage long-term share investment”.
“Wealth accumulators and working professionals also need confidence to invest for the long term outside superannuation and the family home,” she said.
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