Shaw and Partners Flashnote: Financial Stocks & Markets - oversold short term - MQG -30% six weeks, BOQ -25%, add to exposure here.

Below we list the global investment banks and banks.  IB’s down 27% CYTD, Banks 16%.  Australian financials have followed this path.  We continue to believe CY16 will be one of low growth, high volatility, and so will be tough for growth assets.  Key indicators to watch are: oil; 10 years bonds; and CDs.  Lack of investment, zero interest rate policy, and deflation, means lack of pricing power, low revenue growth, and falling ROE.  That said, banks are now price on 10x-11x which means they are largely priced for low growth. With the bounce in oil, bonds, Deutsche bank on Friday, financial will bounce today.  We believe MQG and BOQ are oversold and could easily bounce >10%. We would add exposure here. Even if we assume -30% in M&A and brokerage, MQG is on 10.6x. BOQ is guiding to flat margins not falling, so with 5%-7% volume growth, it will still have the highest EPS growth in the sector.

 Adam Dawes Senior Investment Adviser Level 15, 60 Castlereagh Street Sydney NSW 2000 Australia T: +61 2 9238 1509 | M: +61 405 533 633 | [email protected]