By Caroline Henshaw
SYDNEY--Australia's major banks, whose share prices soared in
2012, may lose some of their shine in coming years as weakening
commodity demand from China crimps growth in the resource-rich
economy, according to a well-known U.S. economist.
Harry Dent said that Australia may well encounter a mild
recession by the end of 2014 as a global slowdown sparked by
Europe's inability to resolve its debt crisis hurts China's economy
over the next couple of years. That could drive bank shares sharply
lower since China is Australia's biggest trading partner and a
major consumer of its raw materials like copper and iron-ore.
"Mid-2013 things will start to go wrong again in Europe," Mr.
Dent said in a phone interview. "That reflects on the U.S. and that
reflects on China. Australia may not feel it until 2014, but your
stock markets and banks will start to feel it before then."
Australia's largest lenders have long been regarded the darlings
of the international banking system after their conservative
practices helped them survive the global financial crisis with
barely a scratch. Their shares surged last year as investors viewed
their high yields and top credit ratings as a safe bet amid
continuing global economic uncertainty.
Commonwealth Bank of Australia (CBA.AU), the country's largest
lender by market value, jumped close to 30% in 2012, while shares
in rivals Westpac Banking Corp. (WBC.AU), Australia & New
Zealand Banking Group Ltd. (ANZ.AU) and National Australia Bank
Ltd. (NAB.AU) also rallied hard.
This week, Commonwealth Bank's market value topped 100 billion
Australian dollars (US$105 billion) for the first time ever making
it worth more than the entire German banking system, the Datastream
Global Banking Index showed.
According to Mr. Dent, however, the good times may be nearing an
end for the so-called Big Four. A major economic slowdown in
Australia would drive a surge in bad business loans in the
resources sector particularly, he said, and could wipe as much as
20% off house prices--which would weigh heavily on all of the
country's lenders.
"I would not want to own Australian banks," said Mr. Dent, who
uses long-range demographic modelling to predict economic trends.
The economist accurately forecast a slowdown in Japan during the
1980s, while the economy was performing robustly.
Some analysts have said that Australia's lenders would also be
hurt in the coming months and years by slowing credit growth,
higher funding costs and more stringent international capital
regulations.
Signs of slowing credit growth are already apparent. Official
data this week showed business-sector credit growth contracted at
the fastest pace in almost a year-and-a-half in November, while
housing-sector credit growth slumped to a record low in the 12
months to November.
Weakening domestic growth may also contribute to falling asset
values, which in turn could hurt bank balance sheets and put
pressure on their profits in fiscal 2013, Nomura analyst Victor
German wrote in a note to clients on Thursday.
A spokeswoman for Commonwealth Bank declined to comment on the
outlook for banks' share prices. Spokespeople for the other lenders
didn't immediately return requests for comment.
Write to Caroline Henshaw at caroline.henshaw@wsj.com
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