By Lewis Jackson
SYDNEY (Reuters) - Holdings of Australia's big banks by domestic fund managers are hovering near record lows on expectations that a combination of high consumer spending and low arrears will give way to bad debts.
Local institutional shareholders were a little over a quarter of the shareholder registry at the major banks in September, the last month this data was available, just off the nine-year low notched during the depth of the pandemic, according to a monthly fund manager survey by JP Morgan.
Financials were the most underweight Australian sector among fund managers, according to a similar report published in November.
Worries about sour loans are a major bugbear for fund managers, said Jason Steed, head of Australian equity research at JP Morgan, with concerns that this year's run-up in interest rates will lift loan distress as pandemic savings are depleted.
Money managers also worry hot competition in the A$1.8 trillion ($1.23 trillion) home loan market will limit how much margin banks eke out of higher rates.
"I don’t come across any domestic investors, bar one or two, who are outright positive for the banks," Steed told Reuters.
Even if fund managers were positive about the stocks, the small market makes big stakes risky and hard to build, added Steed.
Australian banks are benefiting from a booming economy and historically tight labour market that has so far shown little sign of slowing despite eight successive rate hikes.
Consumer spending is strong while delinquency rates for consumer credit are still trending down and remain well below pre-pandemic levels, according to data from credit reporting agency Illion.
Few signs of credit stress yet https://www.reuters.com/graphics/AUSTRALIA-BANKS/lbvggneyxvq/chart.png
The S&P/ASX 200 Financials , which includes majors Australia New Zealand Banking Group, Commonwealth Bank, National Australia Bank (OTC:NABZY) and Westpac, is down 1% year to date compared to a 2.6% decline for the benchmark index.
But current smooth conditions are likely to fade as people run down savings and the lagged effects of rate hikes and falling property prices hit spending, said Jo Masters, chief economist at investment bank Barrenjoey.
"Makes sense you're not seeing the stress now but if we have the conversation next year it will look different," she said.
($1 = 1.4684 Australian dollars)