European banks represent the world's biggest contrarian trade: Citi
[LONDON] Buying European bank stocks would be the world's biggest contrarian trade, Citi analysts said, adding they expect both returns and asset quality to improve next year.
Banks in the economic and monetary union in Europe are the worst performing sector over the past decade among the 285 sectors which Citi tracks globally.
The USinvestment bank stopped short of recommending an outright "buy" on the sector, given that banks still face headwinds from low inflation and low interest rates while earnings expectations remain under pressure.
"History says 'Buy', but our key message is do not 'Underweight' the sector," said Citi analysts, led by Jonathan Stubbs, in a note to clients.
Danske Bank, Standard Chartered and BBVA are the US broker's preferred picks, while it counts HSBC among its less preferred stocks.
Banks globally have been on the backfoot since the 2008 crisis. Citi noted that emerging markets are the only region in which banks currently trade above their book value.
European banks, down 22.6 per cent this year, currently trade at about 0.7 times book value while Japanese banks, at about 0.5 times, are the world's cheapest, according to Thomson Reuters data.
REUTERS
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Banking & Finance
Citi picks Amit Dhawan to head Singapore commercial bank operations
China finance ministry echoes Xi’s call for bond trading at PBOC
Thai PM asks banks to lower interest rates to help economy
Bank of Japan to hold rates with focus on hawkish signals to buoy yen
From airport lounge access to dining deals: How banks can attract customers with travel perks
Japan to work with counterparts on excessive FX moves, says finance minister