The Commonwealth Bank of Australia (ASX: CBA) share price had a tough time during March, but it outperformed the S&P/ASX 200 Index (ASX: XJO).
The Commonwealth Bank share price declined by 4%, while the ASX 200 dropped by 7.8%.
It was a volatile month for the world as Israel and the US launched attacks on Iran, which then retaliated by attacking multiple Middle East countries and blocking the Strait of Hormuz.
A number of businesses fell harder than the ASX bank share during March, such as BHP Group Ltd (ASX: BHP) which dropped 13.7%, which was a sizeable factor in why the ASX 200 declined by more than the Commonwealth Bank share price.
Why was the Commonwealth Bank share price fairly stable?
The jump in fuel costs following the Iran conflict is leading to higher inflation and this could mean interest rate increases by the Reserve Bank of Australia (RBA).
Higher interest rates are a problem for most asset prices because risk-free investments are offering a stronger return, making risky assets less appealing (like shares and property). That’s why share markets and property prices typically go down when interest rates go up (or when the market thinks interest rates are going up).
But, Commonwealth Bank is one of the businesses that could financially benefit from interest rates going up.
It may seem as though that the ASX bank share’s earnings wouldn’t change much considering both loans and savings rates (should) go up at the same pace as the RBA.
But, Commonwealth Bank (and other banks) have a sizeable amount of client transaction deposit balances. When interest rates go up, this can mean the bank can lend that money out at a higher rate, which is a boost for net profit. Higher profit potential is a boost for the Commonwealth Bank share price, which may have been enough to cushion the bank during March.
Final thoughts
The bank has proven its ‘blue-chip’ ability to provide stability as investors seek a safe haven of strength and the strongest balance sheets.
Time will tell what happens with the conflict, inflation and interest rates, but Commonwealth Bank has weathered the storm fairly well so far.
But, after looking at various valuations, there are other ASX dividend shares that could be better buys.
