What a banking Royal Commission means for investors and superannuants

A dip in the value of listed financial stocks including Australia’s Big Four banks the day the federal government announced a Royal Commission into the banking, superannuation and financial services industry, could be a sign of things to come for shareholders in the country’s most widely held institutions.

The long heralded Royal Commission into the banking industry could have the effect of a “cloud of doubt” hanging over banks and financial for the next 12 months or so, says Dr Shane Oliver, AMP Capital’s Head of Investment Strategy and Chief Economist.

“We don’t know which way it’s going to go – it may come to something more significant or it may lead to a lot more regulations. There’s a degree of uncertainty around this part of the market,” Oliver says in his latest video commentary.

But a potential overhang stemming from the Royal Commission is not just something for holders of bank shares to worry about and has the potential to impact all Australians, Oliver notes.

Banks and related financials account for almost a third of the value of the local share market, which accounts for some 8 per cent of each individuals’ superannuation exposure, Oliver highlights.

Royal Commission or not, bank shares will continue to offer attractive yield relative to the broader market and therefore will remain in demand amongst retirees seeking income via the share market, Oliver points out.

From a global perspective, though, Oliver says banks globally have some more appealing characteristics when it comes to potential share market returns, in particular, when it comes to valuation.

“Recently, out of the US, we’ve heard there could be less regulation with US banks. So the US is moving in the direction of deregulation at a time we’re moving in the direction of increased regulation potentially,” Oliver points out.