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Investments, Regulation

Royal commission has not affected sector view

An international fund manager has revealed the recommendations from the banking royal commission have had no effect on its investment views about the banking and finance sector.

JP Morgan global market strategist Kerry Craig said the manager’s views on the sector stem from the fact it feels the process has not come to an end with the release of the commission’s final report.

“It really hasn’t changed our view in terms of what we think about the banking sector and financials in Australia [because there could be] more pain to come,” Craig said.

“[This means] more remediation to come through and it will still take a while for a lot of these potential changes to come to fruition given the outcome of the election in May.”

According to Craig, JP Morgan assessed the royal commission impact on the sector in conjunction with other influencing factors when it formed its sector view.

“You still have that backdrop in the Australian economy of not a credit crunch, but constrained credit growth, which would weigh on bank profits,” he said.

“So our view of the market hasn’t changed on the back of that.”

He noted the manager’s attitude toward the domestic banking and finance sector was one of the reasons it was currently pursuing investment opportunities in global markets.

“Leading on from that it’s one of the reasons we prefer global assets rather than local ones because we do see growth momentum here which is below trend, inflation which is low, and an RBA (Reserve Bank of Australia) which is somewhat constrained in terms of what it can do given the problems in the housing market with raising and lowering rates,” he said.

The generation of income from Australian shares could still provide a good outcome for some investors, but JP Morgan feels the associated downside risk is too great, he added.

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