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W hy we view Commonwealth
Why we view Commonwealth

Bank as th e high est qualit y of th e
Bank as the highest quality of the

big four banks
big four banks

S e an S e q ue i r a Ch ie f I n v e s t m e n t O f fi c e r , A u s t r alian E a gl e
Sean Sequeira Chief Investment Officer, Australian Eagle

Sean shares why the Commonwealth Bank of Australia (ASX:CBA) is the bank assessed as the
highest quality by the Australian Eagle team.

At Australian Eagle, the external environment is not something we With household budgets already stretched thin by inflation, the
can control but it is something we do pay attention to. It plays a part collective fear is that some Australian mortgagees may not be able
in our investment thesis on stocks and will always be an important to handle such a fast rate rise, especially when wage inflation is
consideration in terms of our assessment of the quality of a struggling to keep up. Banks traditionally make higher margins
company. However, the investment team tends to focus more on the when interest rates go up but if more loans become impaired than
inherent fundamentals of stocks especially those involving factors expected, it may offset the normal benefit of higher rates. As a
under management’s control. The assessment of the quality of the result, the effect of the RBA’s actions may be perceived as somewhat
Commonwealth Bank (ASX:CBA) and its big four bank competitors of a double-edged sword for now.
presents an interesting scenario worth looking deeper into, both
from an internal and external environment perspective. COMMONWEALTH

The Australian equities market has a large weighting towards the BANK OF AUSTRALIA
bank sector, with the big four banks representing over 22 per
cent of the S&P/ASX 100 Accumulation Index in terms of market IS THE LARGEST
capitalisation. The great Australian dream is to own your own home
(and a few more to rent out!) and many Australians have achieved OF THE BIG FOUR
to $10 trillion, four times the size of the stock market. As the big four BANKS AND THE ONE
this, making the Australian residential property market worth close
banks have just under 80 per cent market share of the residential ASSESSED AS THE
property mortgage loan market, their fortunes remain closely tied
to residential property prices which are also directly tied to interest HIGHEST QUALITY
rates. However, the effect of this relationship is not always clear,
especially in the current environment where no one knows how BY OUR INVESTMENT
long interest rates will rise for or to what level they may rise to. The TEAM.
Reserve Bank of Australia (RBA) has already hiked interest rates
at an unprecedented 7 consecutive meetings since May 2022 to
combat high inflation.

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