The share of ASX Bank with ‘the most direct leverage on rising rates’: fundie

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ASX bank stocks have burst onto investors’ radars this year amid a nascent era of rising interest rates.

With inflation soaring across much of the western world, central banks began raising their official rates. The US Federal Reserve recently hiked rates by 0.50%, and many more rate hikes are expected over the coming year as the latest US inflation numbers remain above 8%.

Last week, the Reserve Bank of Australia (RBA) raised the official cash rate for the first time in more than a decade. The rate fell from a historical low of 0.10% to 0.35% currently. RBA Governor Philip Lowe has signaled that further rate hikes should bring down Australia’s rapidly rising inflation level.

While higher interest rates will create headwinds for many companies, especially growth stocks whose price is based on distant future earnings, they may actually benefit ASX bank stocks. This is because higher rates can see banks increase their credit lines.

But which ASX banking stock is best positioned to capitalize on higher rates?

For insight into this question, we turn to Kate Howitt, portfolio manager of Fidelity’s Australian Opportunities Fund (courtesy Australian Financial Review).

ASX Bank share best positioned for rate hike

Howitt believes investors in ASX bank stocks should consider in a rising interest rate environment is Judo Capital Holdings Ltd (ASX:JDO).

According to Howitt:

Newly listed Judo Bank offers the most direct leverage on rising rates. Its funding costs are anchored by the RBA’s fixed-rate term funding facility, while its interest income automatically increases with rate hikes. This will provide a significant boost to the bank’s margins, in addition to the bank’s strong growth in lending.

As a bonus, since Judo operates in the small and medium enterprise (SME) sector rather than the highly competitive mortgage sector, its rate hike is less likely to face competition.

How did judo behave?

After struggling for much of the year, Judo stock price strongly outperformed the Index of all ordinaries (ASX:XAO) over the past few days. This strength is likely related to two recent reports from Judo, indicating that its loan book grew 4.1% in the March quarter and that it expects to meet or beat all of its prospectus metrics for the year. exercise 22.

Judo stock price closed Thursday at $1.72, a gain of 5.85%. It is now up 10.6% since Monday’s close, while the All Ords has lost 2.5% over the same period.

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