ANZ, Commonwealth Bank, NAB and Westpac have had a monster 2024. Can it continue?

We investigate ASX bank sector returns in 2024 to try to determine just how good they’ve been, and ponder what investors might get in 2025.
Carl Capolingua

Livewire Markets

Once in a generation returns. Once in a generation overvaluations.

That’s how some of the most influential brokers that cover the Australian stock market are describing ASX bank stocks. Why have the brokers worked themselves into such a lather over returns delivered by the local bank sector this year? I offer a couple of reasons:

1. ASX bank stock returns in 2024 are almost literally off the charts compared to anything seen over the last 10 years (see relevant charts below!)

2. Pretty much all this year, most brokers have stuck with SELL ratings on the sector

Both reasons add up to massive underperformance for anyone who followed the experts’ advice and either sold or chose not to buy ASX bank stocks.

Given the vast majority of you reading this sentence have a financial interest in the ongoing strong performance of ASX bank stocks, either directly through your portfolios or indirectly through investments in a managed fund or superannuation – the question of whether these stocks can repeat their incredible performance again in 2025 is crucial to understand.

Just how good have ASX bank stocks been?

Exhibit 1: Australian Bank Shares vs S&P/ASX 200 last 12-months Performance (click here for full size image)
Exhibit 1: Australian Bank Shares vs S&P/ASX 200 last 12-months Performance (click here for full size image)

Exhibit 1 in our investigation of just how good ASX bank stocks have been this year, is a chart of their relative performance over the last 12 months compared to the benchmark S&P/ASX 200 (XJO). Note that I am using total return (“TR”) data, which is capital gains and dividends. The “XJOA” is the total return index of the XJO. Returns are expressed as percentages with base zero commencing on 1 December 2023 and up to the close on 3 December.

In first place, by a country mile, is Commonwealth Bank of Australia (ASX: CBA), with a 41.8% total return over the last 12 months. It’s worth pointing out, the XJOA’s performance wasn’t that shabby either, at 24.5%. This points to a 17.3% outperformance for CBA – but one must remember that much of the XJOA’s return comes from CBA and Co. anyway – so we’re not really comparing apples and apples here!

For what it’s worth, WBC is in second place with 39.8%/+15.3% in terms of total performance/XJOA outperformance, then comes Bendigo and Adelaide Bank (ASX: BEN) with 34.6%/+10.0%, and National Australia Bank (ASX: NAB) with 29.2%/+4.6% respectively.

Only two of the big banks “underperformed” the XJOA over the last 12-month period (remember the XAOA return is juiced by bank returns). ANZ Group (ASX: ANZ) delivered a credible 22.7% total return, but in theory, lagged the XJOA by 1.8%, and Bank of Queensland (ASX: BOQ) delivered 15.7%/-8.8% respectively.

Exhibit 2: Australian Bank Shares vs S&P/ASX 200 last 10-years Performance (click here for full size image)
Exhibit 2: Australian Bank Shares vs S&P/ASX 200 last 10-years Performance (click here for full size image)

Exhibit 2 in our investigation broadens the lookback period to 10 years. Here, I want to investigate how much of an outlier 2024 is (if it is) compared to typical annual total returns. Before we get onto that topic, note that contrary to what many Aussie investors likely think, investing in ASX banks over the medium to longer term has generally not been the best strategy.

Over the last 10 years, all but CBA have underperformed an investment in the benchmark on a total return basis. Yes, that’s including dividends. The underperformance is substantial, too. We’re talking by half for NAB and BEN, by close to threefold for WBC and ANZ, and over tenfold for BOQ.

For the most part, the data suggests that ASX bank stocks have been lousy investments over the last 10 years.

I know you’re going to check these numbers yourself. I had to check and double check my results. But consider that in 2014 when this comparison started, ANZ and WBC were both around $30 – they’re still around $30 today. BOQ was around $11 – it’s now down to just $7. This means the return from ASX bank stocks over the last ten years, in many cases, wasn’t much more than their dividend yield.

2024 is indeed starting to look like a very good year for ASX bank stocks, if only because it's seen them catch up to the pack on the capital gain side of the equation. You’re probably wondering how you didn’t know this stuff. Well, it’s because it’s extremely difficult to get data like this on total returns per stock. It took quite a bit of figuring out myself!

The point I want to make here, is that ASX bank stocks’ returns so far in 2024 do not appear to be typical compared to those delivered over the last 10 years. For the stats nerds like me, the table below quantifies just how much of an outlier 2024 really is.

Exhibit 3: ASX Banks Annual Performance last 10 years (click here for full size image)
Exhibit 3: ASX Banks Annual Performance last 10 years (click here for full size image)

See above the annual total return for each of the major ASX bank stocks over the 10-year period between 2014 and 2023, and year to date (“YTD”) for 2024 (note some of the YTD returns will differ from the rolling 12-month returns discussed earlier). I’ve also included the average annual total return for the relevant 10-year period and the standard deviation of those returns.

ANZ’s 10-year average total return of 2.5% pales in comparison to 2024’s 18.9%, which is 1.8 standard deviations from the mean. BEN is off the charts at 2.7% average total return versus 2024’s 29.8% and nearly 5.3 standard deviations from the mean. BOQ is 0.3% average total return versus 2024’s 11.3% and 1 standard deviation from the mean. CBA is 6.9% average total return versus 2024’s 34.2% and 4.1 standard deviations from the mean. NAB is 3.6% average total return versus 2024’s 23.4% and 2.2 standard deviations from the mean. WBC is 1.5% average total return versus 2024’s 34.5% and 4.2 standard deviations from the mean.

I agree, the sample size is on the small side, but I suggest the last 10 years is fairly representative of all possible economic cycles, containing periods of both strong and weak growth. There’s no reason why the next 10 years won’t be similar to the last 10.

The data suggests that 2024 is an outlier year for all but BOQ given 2024’s YTD total return is only 1 standard deviation from its 10-year mean total return. I propose 2024’s YTD total returns for the rest, in particular BEN, CBA, NAB, and WBC with greater than 2 standard deviations from their respective 10-year mean total returns, are indeed extraordinary.

Conclusions

OK, so 2024 is so far a very good year for ASX bank stocks. Hooray for my portfolio, and thanks for letting me know Carl. But so what!? What do I do with them now? Should I hold on for more, take my profits and run (after all, they’re bound to pull back at some stage and I can always get back in at a cheaper price), or perhaps I should buy some more because they’re doing so well?

I’m glad you asked! I will attempt to answer these exact questions tomorrow when I delve into what the big brokers and research houses are currently recommending clients do with their ASX bank stocks, as well as my personal favourite – an in-depth look at the charts. Stay tuned!


This Part 1 of a three-part foray into the performance, valuations, and potential future direction of ASX bank stocks.

Click here to read Part 2 which investigates what the biggest and most respected market analysts think about the prospects for ASX bank stocks now and into 2025.

Click here to read Part 3 which investigates what the charts say about the prospects for ASX bank stocks with detailed technical analysis of each. 


This article first appeared on Market Index on Thursday 5 December 2024.

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Investing is risky. Inevitably you will endure losses. If you can't cope with losing, don't invest.

Carl Capolingua
Content Editor
Livewire Markets

Carl has over 30-years investing experience and has helped investors navigate several bull and bear markets over this time. He is a well respected markets commentator who specialises in how the global macro impacts Australian and US equities. Carl...

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