Analysts ahead of the game with ‘sell’ ratings on Commonwealth Bank

Australia’s sharemarket was dented by a $14.9bn slump in CBA’s market cap that spilled over to the other banks.

With the other banks down between 1.1 and 2 per cent, the fall in the lenders wiped a massive 63 points off the S&P/ASX 200 index. Picture: NCA NewsWire/Damian Shaw

Australia’s sharemarket was dented by a $14.9bn slump in CBA’s market cap that spilled over to the other banks as its trading update revealed that the mortgage price war was hitting net interest margins.

CBA dived 8.1 per cent to a four-month low of $98.99 as its net margin was “considerably lower” in the September quarter despite strong volume growth, amid price competition and switching to lower margin fixed- rate loans and the low interest rate environment.

With the other banks down between 1.1 and 2 per cent, the fall in the lenders wiped a massive 63 points off the S&P/ASX 200 index, which fell 0.7 per cent at 7369.93 points.

The lowest daily close on the ASX in the past two weeks has left it vulnerable technically to further dips after it broke an uptrend line drawn from the March 2020 low.

But it would probably take a “top” on Wall Street to see the ASX fall to its 200-day moving average near 7200. Much depends on whether the US market has a “melt-up” from here. Certainly the price action on Wall Street since the two big negative events this month – the formal announcement of Fed tapering and the blowout October CPI data, both of which should put upward pressure on global interest rates – has been very good, thanks to signs of US economic resilience.

Analysts warned of “material downgrades” on CBA, and it has been something of a favourite stock for retail investors throughout the pandemic.

But the consensus rating in the analyst community was already a “sell”, with a consensus target price of $95.50, according to Bloomberg. Perhaps some will lower their targets and a couple will cut their buys or move down from hold to sell but if the institutions were listening to the analysts they would have already been underweight.

Morgan Stanley strategists reduced their banks sector positioning in their model portfolio to equal-weight to reflect “increased headwinds to earnings”.

CBA dived 8.1 per cent to a four-month low of $98.99. Picture NCA NewsWire/Emma Brasier.

Wednesday’s fall in CBA was the biggest since the “Covid panic” in early 2020.

After its results in August, CBA rose as much as 2.3 per cent to what was then a record high of $109.03 on the day of the report, before falling 9 per cent over four days as it went ex-dividend.

The August fall was another case of “down by the elevator”. But it was “up by the stairs” from there as it rose 11 per cent over three months.

CBA looks poised to test its 200-day moving average at $97.04 when trading resumes on Thursday – a further 2 per cent drop, assuming some price target downgrades.

But many investors will buy it at that level on a technical basis. How much of a bounce and in what time frame is debatable.

But if CBA soon regains $99, the thought will be that it is still “range trading”.

With a grossed-up dividend yield of 5.8 per cent at $99, a clean-out of retail long positions will lessen risk for investors wanting a safe place to park their cash with a decent yield.