Banking's bulls still on the run
Despite poor economic conditions and political uncertainty, banking stocks rallied 35% over the past year and the momentum has carried through into the new year.
Although impressive, the banking sector's performance came off a low base following "Nenegate", the sacking of former finance minister Nhlanhla Nene by President Jacob Zuma in December 2015, which Harry Botha, an analyst at Avior Capital, said was the biggest contributing factor to the rally. Adrian Cloete, a portfolio manager at PSG Wealth, said the performance of South Africa's bond yield, which moved below 9% last year and has remained at those levels, was among the contributing factors. "As the 10-year bond yield moves lower, some shorter-term market participants could start to use a lower-risk discount rate to value banking shares which results in higher implied valuations. We have seen some of this already in the rally of banking shares," he said. Botha said the assumption that there was going to be an economic recession could also have been a factor. However, a short-term recession would have had very little effect on banking stocks. "Our big banks are pretty resilient - they...
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