Are blue chip bank shares in the buy zone yet?

CommBank, Westpac, NAB and ANZ have each seen their share price fall around 30% since late February, but is it still too soon to buy?

Many Australians, particularly older Australians, will own CommBank, Westpac, NAB or ANZ shares in their stock portfolio (you might even own all four!). The Big Four banks are some of the most popular blue-chip stocks listed on the ASX, one reason being their reliable history of fully-franked dividends.

But thanks to ongoing coronavirus fears, the big banks have each seen their share prices smashed over the last three weeks. While this would undoubtedly be making existing shareholders nervous, it could also be opening up some opportunities to load up on the shares while they're on sale.

How much have bank shares fallen?

Pretty much every stock on the ASX has been falling in recent weeks, and the ASX just had its worst day on record on Monday. And while travel stocks have been among the hardest hit and are down more than 50%, the big banks have certainly had their fair share of market turmoil too.

CommBank (ASX:CBA) was down 35% from its last peak in late February to market close on Monday. It rallied 13% higher on Tuesday and finished at $67.64 per share, but this still represents a discount of 26% from its February peak.

Westpac (WBC:ASX) on Monday finished the day down 38% from its late-February peak. It also surged higher on Tuesday but closed at $17.25 a share, which is a 33% fall from late February.

NAB (NAB:ASX) and ANZ (ANZ:ASX) were both hit even harder. NAB recorded a 41% drop from its late-February peak to market close on Monday before rising by almost 7% on Tuesday. Similarly, ANZ saw a 41% drop from 21 February to close of market Monday, before increasing an impressive 12% today.

What's behind today's price jump?

According to CMC Market's chief market strategist Michael McCarthy, there were a few reasons for the share price jump today.

"A lot of the activity today does appear to relate to bargain hunting. We've also had a technical signal today in that the low that was formed yesterday coincided with the low formed previously. And so a number of people are suggesting that we're starting to put a bottom in place for the market," said McCarthy.

"Some of the buying that we're seeing is clearly index buying, which means people are buying large chunks of the banks because they make up such a large part of the index.

"It's also clear there's a real preference in the buying today for blue chips, and all of the Big Four banks in particular remain blue chips. It's another reason why they're getting support. That does not mean that they can't fall further in the coming days and weeks," he said.

Is it time to buy bank shares?

While the banks are traded at a significant discount from their February highs, McCarthy cautioned investors from rushing out and stocking up too soon.

"I don't think the market has given us any signals that suggests it's the right time to buy anything at the moment," he said.

"The reality is even when markets go up by 10%, they're still flashing high volatility and potential further falls. So until we start to see coronavirus infection rates starting to drop, or we start to see signs of market stability, which is trading ranges becoming a lot smaller and daily changes become a lot smaller, there's no need to rush into the current market."

Is it time to sell your bank shares?

While McCarthy said there's no rush to buy anything in the market at the moment, he also urged existing shareholders not to panic sell.

"There's no blanket recommendation and the right decision on your current shareholdings depends very much on your personal situation. There's no one answer. But I would say that a lot of the damage has already been done to the banks and while it's likely that a restrained economic outlook means that dividends could come down, the banks remain in very strong positions in terms of their balance sheets."

"The willingness of central banks and the RBA to provide liquidity support speaks strongly to the security of banks over what could be a disruptive time," he said, referring to the RBA's announcement that it is prepared to engage in quantitative easing (QE) to help boost the economy.

"One factor to consider is that even if earnings do come down and dividends are reduced, it's quite possible the banks will continue to pay superior dividend yields. If you're retiring at the end of this year and are looking to start drawing down any capital, then that might not be of any importance to you. But if you've got a longer time horizon those higher dividend yields, even if they come down, could mean that the right choice for many is to ride out the storm."

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