29 Jan 2013

It may not be a pre-cursor of things to come but the recent downgrade by Moody’s Investor Services of five Canadian banks is one to keep an eye on – see this article in today’s SMH. The potential importance of this for our market is that Canadian banks are the most similar to the four major Australian banks and our economies also have quite a bit in common. This is not just confined to the energy and resource concentrations and  high dollars but also we both have relatively expensive housing markets – and hence the focus on banks due to their substantial exposures to housing.

Now bear in mind that the rating agencies were badly caught out in the 2008 financial crisis  – more for structured securities than regular corporate ratings but they suffered serious reputation damage nonetheless. There could be an element of preempting any potential adverse market movements but equally they could be on to something. One to keep an eye out with respect to our banking sector.