Commonwealth Bank shares drop again as economy worries bite

CBA is Australia’s most popular and traded stock, and many of its 880,000-plus shareholders are feeling uneasy. Here’s why.

Shares in Australia’s biggest bank have tumbled below $100 for the first time since October as investors worry about the impact of high interest rates on its earnings and the economy.

The $170 billion Commonwealth Bank shrunk 3 per cent in value on Wednesday morning before staging a slight recovery to end the day 2.3 per cent or $2.32 lower at $99.20.

After a stellar start to 2023, the bank’s share price has dropped 11 per cent since early February – three times as much as the overall stock market’s 3.3 per cent decline in the same period.

Shaw and Partners senior client adviser Jed Richards said banks had previously enjoyed a strong six-month period “because of their consistent earnings profiles in what will be a volatile time elsewhere” and because banks traditionally did better in high interest rate environments.

“The reason for the latest fall is the Reserve Bank of Australia’s latest commentary regarding higher interest rates than what the market expected – there is a fear that will lead to more defaults, and all banks are affected by defaults,” he said.

Market strategist Jessica Amir from Saxo Markets says an earnings slowdown is expected.

Mr Richards said CBA was the best performer among Australia’s banks, with strong management, but was also the most expensive.

He said there could be more negative surprises for the stock in the coming months, but “anyone with a time frame of more than two years would be wise to buy CBA for the long term”.

“It is an industry that is very important and is not going away any time soon.”

Saxo Markets market strategist Jessica Amir said CBA shares could remain under pressure because of a “weaker than expected outlook”.

“The Reserve Bank has its foot on the gas moving interest rates higher to slow down inflation, and that’s hurting customers,” she said.

“CBA has put aside a wad of cash for bad debt provisions … Aussies are doing it tough and struggling to meet their mortgage repayments, and that’s going to affect CBA’s bottom line ahead.

“The market is pricing in a slowdown in earnings, but the overall expectation is that CBA shares might pick up again later this year.”

Originally published as Commonwealth Bank shares drop again as economy worries bite