Banks shares and the broader market getting expensive
Australian bank shares were trading at a multiple of earnings that is 43 per cent above their counterparts in Britain, and 23 per cent higher than the big banks in the US.
Since 2000, the average premium of the shares prices of Australian banks over the British banks is only 17 per cent, and over the US banks five per cent. The banks traditionally trade at a price-earnings discount to the broader stock market and, although the discount has halved to about nine per cent in the past year, it is still a discount. Bank profits are strong and, while their share prices could arguably do with a refreshing pause, they are unlikely to plummet. And while the Australian market is a touch expensive overall, at about 16 times expected earnings when the long-term average is about 14 times, higher company profits are still the main force.