Local banks are poised to miss out on the sharp re-rating higher of financial stocks in the United States, say fund managers, following the news US financial regulations are poised to relax.
While local bank stocks took their lead from Wall Street and roared higher on Monday, President Donald Trump's executive order to begin rolling back portions of the Dodd-Frank Act is unlikely to influence Australian regulation, currently monitored by APRA.
"We'll get a nice short term boost as financial stocks around the world go up, but the local big four are retail banks, not investment banks," says Omkar Joshi, senior analyst at Regal Funds Management.
"They aren't beholden to any of the regulations in the United States so none of what happens there will apply to our banks."
On Friday, banks rallied hard in the United States after the new administration vowed to loosen the regulations put in place following the global financial crisis in 2008. These regulations were designed to protect consumers from bad investment advice.
Morgan Stanley leapt 5.5 per cent on the news and Goldman Sachs was up 4.6 per cent. At home, all the big four lenders were trading around 1 per cent higher at lunch time.
"We're pretty happy about the news," says Garry Laurence, global portfolio manager at Perpetual Investments. "Regulations like this were hindering the ability of US banks to generate good returns and lend money out and that hurts the economy.
"But when it comes to Australian banks, they aren't really involved in investment bankings, so it won't have a large impact on them."
The most recent developments reflect a broad effort by the new administration to loosen banking regulations, at odds with the President's campaign on empowering working Americans and vocal criticism of Wall Street.
Banks on earnings
While global sentiment has largely driven financial markets throughout a volatile January, investors are relieved to be in the throes of earnings season, providing information on company performance.
Strict capital controls and persistent financial advice scandals have left local banks trading within a fairly tight band, unable to break much higher despite the global euphoria at the prospect of a flood of fiscal stimulus in the United States and tighter monetary policy.
However it's unlikely the big four will receive much joy as they distribute quarterly reports.
"Overall it's going to be pretty soft," says Mr Joshi. "We are not going to see much growth, margins will still be under pressure, nothing really groundbreaking."