The Australian banking sector has re-established itself as a low-beta haven as global markets wrestle with AI-driven swings, according to Hebe Chen, senior market analyst.
A surge in profits is propelling Australian bank shares above their global peers this year, offering a rare pocket of outperformance for investors grappling with artificial intelligence-driven market swings.
A gauge of domestic banks hit a record on Thursday and is up 11% in 2026 after rosy earnings updates from the country's biggest lenders. That's more than double the gain for the MSCI World Bank Index and surpassing comparable measures for the US, Europe and emerging markets.
Climbing profits from Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and ANZ Group Holdings Ltd. supercharged the rally this month. Earnings are being supported by a strong housing market that's bolstering mortgage growth, as well as higher interest rates that could benefit net interest margin income, according to analysts.
"The Australian banking sector has re-established itself as a low-beta haven," as "global markets wrestle with AI-driven swings," said Hebe Chen, senior market analyst at Vantage Global Prime Pty. in Melbourne.
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The spike in banking stocks marks a shift in fortunes from early 2025, when rising competition and falling interest rates squeezed margins, wiping billions from the sector. The advance has also boosted Australia's financials-heavy S&P/ASX 200 Index this year. Meanwhile, anxiety over the impact of AI on industries from software to logistics has spurred a virtually flat start to 2026 for the S&P 500 Index.
The positive investor response to earnings reflects robust net interest margin income, manageable bad debts and "surprises with regards to how strong credit growth actually was within the system," said John Storey, head of Australian bank research for UBS Group AG in Sydney.
Still, the swift jump in Australian lenders has taken many off guard given their lofty valuations relative to peers. The country's banks now trade around 2.4 times book value, compared to 1.6 times for US counterparts and 1.4 times for those in Europe.
The post-earnings market reaction "was a surprise to me," said Morningstar analyst Nathan Zaia. The shares are "priced quite richly at the moment," making it "hard to justify why they're trading at such large premiums to other regions."
Australia's largest lender Commonwealth Bank trades at 3.9 times its book value, a premium to global peers like JPMorgan Chase & Co., which trades at 2.4 times.
CBA's results offered "reassurance" to investors who were worried home loan growth would weigh on net interest margins -- a risk that was partly neutralized by robust deposits, Zaia said. The earnings underscored how "people are attracted to their franchise," he added.
