Banking Shares: Is The Fun Over?
Banking shares have been one of the best performing sectors during the last year, especially since the last quarter of 2017. Recently though, the momentum has changed and the shares seem to be retreating.
The reason for the surge in banking shares can be attributed to numerous factors. Banking shares initially ran because of the rumours of Jacob Zuma being removed, and then subsequently because of the optimism surrounding Cyril Ramaphosa being elected as ANC president. Although Ramaphosa has been able to achieve a lot in his short stint so far, cleaning up state enterprises and trying to lure international capital back into our economy, the euphoria has faded somewhat and reality has started to set in.
This run of banking shares continued into March 2018, and it is only since about mid-March that this trend has been reversed (as can be seen from the graph below). Most of the banking shares have exceeded their target prices from analysts, which means the potential upside in buying them is very limited. As is to be expected, some investors have decided to rather sell their holdings and take profits.
The domestic environment is favourable for economic growth, which should bode well for banking shares. I do not foresee banking shares declining substantially further, and still believe it is a good sector to have exposure to in your portfolio. They might steadily retrace in the coming weeks, but this is mostly just a result of the incredible run the shares have had in the last six months. If you are looking to buy banking shares, wait for a further pullback in their price in the coming period, and then get in at a level you are comfortable with.
credit: Graph Provided by Sharenet Advanced Online Charts
Head of Trading and Portfolio Analyst
Stephan heads up Sharenet’s trading desk and is a full-time trader and portfolio analyst, also responsible for equity research across industries. Stephan developed his passion for the markets while working in the Stockbroking division of Standard Bank and is especially passionate about CFD trading. Stephan studied at the University of Stellenbosch and completed a BComm Honours (Business Management) with a focus in Portfolio Management and Bonds. He has also passed the JSE Equity Trader’s Exam, RE5 (Representative) and RE1 (Key individual) Exams as well as the Registered Persons Exams (RPEs) in order to give advice on equities.