Commonwealth Bank of Australia (ASX: CBA) is one of the most widely held shares on the ASX, but it’s not in my portfolio for a few reasons.
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
3 Reasons CBA Shares Aren’t In My Portfolio In July
Although CBA shares have gone up by 15% over the past year, I don’t think it looks any more attractive to me for at least three reasons:
House Prices
There’s a lot of chatter that Australian house prices are suddenly going to start growing again because of various reasons like APRA lowering its interest rate buffer for borrowers, the Liberals winning the election and the RBA cutting interest rates twice.
I’m not certain that house prices are going to grow at a decent clip over the next 12 months, meaning that credit growth is unlikely to be attractive either.
Unless house prices are steadily growing I’m not confident on CBA’s near-term growth prospects.
Higher Regulation
Throughout most of the cycle, banks try to make as much profit as they can. It depends how strict their lending standards have been in the good times which affects how bad the bust is in the downturn.
Regulators in both Australia and New Zealand want the large ASX banks like CBA to hold more capital, which will lower profitability throughout most of the cycle and therefore probably lowers returns.
However, these banks are too important & big for them to fail, so I complete agree they should be set high expectations.
Better Opportunities
Commonwealth Bank is just one share out of many other options that we can invest in. Opportunity cost is an important concept.
There are plenty of other shares that we can invest in like BetaShares Australia 200 ETF (ASX: A200) or MFF Capital Investments Ltd (ASX: MFF) that could be better long term options.
There are plenty of big and reliable businesses on the ASX to invest in that aren’t necessarily mature or troubled, like the ones in the free report below.
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