Why not to currently invest in the banking sector
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Stocks of European banks are currently lagging behind market indices. 2018 saw roughly 300 billion euros in shareholders’ money wiped out across the European banking sector, down 25.8% compared to 11.0% for the wider market. Despite a more positive start tWhy not to currently invest in the banking sector
Stocks of European banks are currently lagging behind market indices. 2018 saw roughly 300 billion euros in shareholders’ money wiped out across the European banking sector, down 25.8% compared to 11.0% for the wider market. Despite a more positive start to the year, European banks are still lagging other sectors, up 5.6% compared to 6.7% for the wider market. European Banks are indeed facing a double-edged sword, whereby they are caught in a situation where the European Central Bank, via its monetary policies, has instilled negative interest rates on high grade fixed income assets. Concurrently, it has sequentially implemented a host of stricter capital requirements, essentially forcing the bank’s hand to hold very high grade assets as well as limiting risk. This has inevitably resulted in the tightening of net interest margins, reducing operating income. Given that the outlook for growth in the European Economic Area remains tepid, there is little hope for a material rise in interest rates in the short term. Indeed, in the ECBs most recent comments they expect the Eurozone’s path of inflation will be shallower while its economic slowdown will be “stronger and broader” than... Read more