Dividends are never out of fashion, so buy banks on dips

Chief Investment Officer and founder of Aitken Investment Management
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Key points

  • People’s Bank of China joins quantitative easing with 100 basis point cut in the reserves requirement ratio, which pushes up our local dollar and boosts the case for the Reserve Bank to cut.
  • The S&P/ASX 200 Accumulation Index has returned 55% over the last five years, compared to 24% for the S&P/ASX 200 prices index.
  • Consider buying NAB, ANZ, Bank of Queensland and Bendigo & Adelaide Bank into any slight dips, ahead of a solid reporting period for the banks.

Last week, China was formally welcomed into the monetary easing dance party. Previously, the People's Bank of China (PBOC) had taken tentative steps, but with the 100 basis point cut in the reserves requirement ratio (RRR), China officially took to the monetary easing dance party floor. Make no mistake, this represents an aggressive policy move by the PBOC, despite comments to the contrary. Currently, the US remains the only missing participant, but with the release of further soft data over the weekend and last night, the Federal Reserve is dancing only just outside the party door.

The case for an RBA cut

Locally, there has been much speculation on the timing of the next domestic rate cut. Following the RBA's decision to leave the cash rate unchanged in April, the market is now pricing in a 56% chance of a 25 basis point cut in May, compared to 80% just two weeks ago. Just last week, a major bank became the first to officially tip 'no 25 basis point cut' in the cash rate in May. Indeed, there is some speculation that we are at the low point of the cycle. Personally, I believe the RBA remains committed to at least one more rate cut this year. I continue to forecast a 25 basis point rate cut in May before the Federal Budget.

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