Investing in Australian banks is an effective "outside the square" way to build a defensive portfolio in the current economic climate, according to Platypus Asset Management (Platypus).
Australian banks now have healthy capital levels after significant capital raisings during the GFC and are in a completely different position to their US and European counterparts, said Platypus portfolio manager Simon Bonouvrie at an Australian Unity Investments luncheon in Sydney.
"If you think about the hits taken by banks in the GFC, most of it was from corporate Australia," Bonouvrie said. With corporate Australia now in such a strong position from a balance sheet perspective it would be tough for the weak companies like Orco, Babcock & Brown, and Centro to harm the banking sector in a meaningful way, he said.
Banks would also be in a position to withstand some deterioration in asset quality in the event of further economic woes, he added.
An investor could also look for high fully-franked yields on stocks in the current market environment, as capital growth would to be extremely hard to come by, he said.
While Bonouvrie agreed with widespread opinion that the best buying opportunities arise when the most pessimism is around, he also warned investors to "keep a bit of powder dry in case we go lower on the index".
"If the market reached anywhere near the GFC low which was 3090 on the index I would be going all in and I’d be investing all your money," he said.
As investors are no longer geared up on margin loans, and banks are not as highly leveraged, the major problems of the GFC are no longer around.
"If a mass sell-off erupts over the next month or two, it will present a good buying opportunity, because it is likely to be transitory in nature," Bonouvrie said.
