ASX 200 index hits ATH amid CBA Bank stock valuation concerns

The ASX 200 index continued its bull run this week even as the Australian dollar soared to its highest point since January this year. It has jumped to a record high of A$8,060 on Monday, 20% above its lowest point in 2023. 

Hawkish RBA concerns

The ASX 200 index rallied even after signs emerged that the Reserve Bank of Australia (RBA) will be the last central bank to start cutting interest rates.

Its recent central bank, RBA officials left the door open for a rate hike later this year if inflation continues rising. 

Recent monthly tracking data showed that the headline Consumer Price Index (CPI) rose to 4% in May, beating the expected 3.8%. 

Still, most analysts expect that the RBA will not hike rates but will opt to maintain them higher for longer. 

In contrast, other central banks are expected to start cutting interest rates later this year. In a statement on Monday, Jerome Powell hinted that the Fed was comfortable cutting interest rates before inflation fell to 2.0%.

The Fed is concerned about the labor market, which has shown signs of easing recently, with the jobless rate rising to 4.1% in June, its highest point since 2021.

In Europe, the European Central Bank (ECB) has slashed interest rates once and is expected to cut them two times. The Swiss National Bank (SNB) and Riksbank have also cut rates and the Bank of England is expected to cut them in August. 

In most cases, indices in developed countries do well when the Fed is cutting rates. This explains why the ASX 200, FTSE 100, and DAX index have continued rising in the past few months.

Australian banks have surged

A key catalyst for the ASX 200 index rally has been the banking sector, which is benefiting from high interest rates. 

Westpac Corporation’s stock has soared to A$28.15, about 50% above its lowest point in 2023. Similarly, Commonwealth Bank of Australia (CBA) stock has soared to A$132, also 50% above its lowest swing in 2023.

Other banks have done well. National Bank of Australia (NAB) surged to $37 while ANZ soared to A$30, up from $20 last year. 

A key concern among investors is whether these banks have more upside because of their valuations. CBA Bank has a price-to-book ratio of 3.0 while ANZ, NAB, and Westpac have 1.31, 1.94, and 1.39. 

These, especially CBA, are highly overvalued considering that JPMorgan has a multiple of 1.9 and Morgan Stanley has 1.69.

Most ASX 200 companies have done well and helped it surge to a record high. Pro Medicus, an IT company, is the best-performing ASX index stock in the past 12 months as it soared by 105% in the past 12 months. 

The other top gainers in the index are the likes of GQG Partners, Altium, Paladin Energy, Goodman Group, and TELIX Pharmaceuticals.

ASX 200 index technical analysis

ASX 200 chart by TradingView

The daily chart shows that the ASX 200 index has done well in the past few months. It recently crossed the crucial resistance point at A$7,912, its highest point on April 2nd. 

The stock has remained above the 50-day and 100-day Exponential Moving Averages (EMA). At the same time, the Relative Strength Index (RSI) has moved to the overbought point of 70.

Also, the Average Directional Index (ADX) has pointed upwards and is nearing 20. Therefore, the index will likely continue rising as buyers target the key resistance point at A$8,200. The stop-loss of this trade is at A$7,9100, its highest level in April and May.