Commonwealth Bank defies a near-unanimous underweight consensus

A rare alignment of fund managers holding underweight or outright short positions in Commonwealth Bank on valuation grounds was rewarded when the stock fell 20% from its mid-2025 peak, only for a stronger-than-feared first-half result to test the bear case in early 2026.

3 Jul 2026 · 6 min read

Few ASX stocks have drawn as consistent a bear case from fund managers as Commonwealth Bank of Australia (ASX: CBA) through late 2025, even as the stock's valuation kept climbing before it. Equity Trustees Asset Management explained its underweight position in September 2025 by arguing much of CBA's outperformance had been driven by price-earnings multiple re-rating rather than underlying earnings growth, with several of the drivers of that expansion non-fundamental in nature, meaning meaningful earnings upgrades were required to justify the starting valuation, upgrades that had not materialised.

A short seller quantifies the stretch

L1 Capital put the clearest numbers on the valuation case in November 2025, holding a short position and noting that despite CBA shares falling from over $190 in late June to $154, the stock still traded on a price-to-earnings ratio of around 24 times FY26 consensus earnings, almost 3 standard deviations above its 30-year average, and at almost 3.5 times tangible book value, higher than any large-cap developed market bank has ever traded. The fund argued this was hard to justify given limited expected earnings growth of only around 2% per annum EPS CAGR over the next two years, and noted CBA's dividend yield of just 3.2% offered little additional support for a valuation case built on income.

We believe this valuation is hard to justify in the context of limited earnings growth over the next 2 years... while many investors own Australia's banks for their strong dividends, CBA is currently offering a yield of only 3.2%.

L1 Capital, Monthly Report, November 2025

The bear case is rewarded in November

The thesis was validated sharply the same month. Clime Investment Management reported CBA fell 11% against a broader market decline of just 2.7%, driven by a poorly received September quarter trading update revealing ongoing elevated cost growth hindering group profit growth, and maintained its underweight position even after the stock had retreated some 20% from its peak. Blackwattle Investment Partners, at its mandate maximum underweight, added a structural dimension to the bear case, arguing CBA's historical competitive advantages were being slowly eroded by increased mortgage competition from Macquarie and Westpac and a deposit base being eroded as savers sought better returns elsewhere, with cost growth now exceeding revenue growth.

We are also of the view that the core advantages CBA has historically enjoyed is slowly being eroded by increased competition... We still believe that the valuation of CBA remains stretched on both an historical and a relative basis.

Blackwattle Investment Partners, Monthly Report, November 2025

A stronger-than-feared result challenges the consensus

That near-unanimous bear positioning was tested sharply in February 2026. Pendal Group reported CBA's first-half NPAT beat consensus by 5%, assisted by lower bad debts, with a smaller pre-provision beat of 2.5%. Crucially, margins fell only 1 basis point excluding liquids, directly counter to management's September warning that margin pressure from deposit competition with Macquarie was coming, with strong deposit growth showing no sign of that competitive erosion materialising in the results. The stock rallied 10.9% on the update, a sharp reversal for a consensus of underweight and short positions that had been built almost entirely on the expectation that exactly this kind of margin pressure would show up.

What managers are watching next

With Tyndall Asset Management having benefited from its underweight through the November decline on the view that CBA's elevated valuation demanded a more robust quarterly result than the market received, and Yarra Capital Management maintaining its own underweight on the view that flat pre-provision profits and already-low bad debts leave little room for further earnings upside, the key question following the February result is whether the deposit competition risk from Macquarie that originally justified the bear case has genuinely failed to materialise, or is simply delayed, as CBA's valuation once again tests the patience of its underweight holders.