All-time low in Financials is not a reason to buy

Please see below the latest ‘Chart of the Week’ from State Street Global Markets.


This week Marija Veitmane, senior multi-asset strategist at State Street Global Markets, looks at financials stocks ahead of the US banks earnings reports. 

“Financials has been the worst performing sector in Europe this year, and for the best part of the last fifteen years. The sector trades on all-time lows relative to the MSCI Europe and remains plagued with low interest rates and poor quality of the loan book.

“In addition, the key part of European banks profits, interest income, remains mediocre and whilst consumer loans are growing slowly, loans to corporates are shrinking considerably. In fact, those loans are hardly profitable as low interest rates/flat yield curves have made them hardly profitable.  

“Furthermore, as was the case in previous crisis such as the global financial crisis and the European sovereign debt crisis, non-performing loans could become an issue. Although European governments and the European Central Bank are doing everything they can to prevent it, it’s unlikely that the quality of the loan book will be unaffected given the sudden stop global economies are experiencing. The quality of the loan books was hardly strong before the crisis struck and the proportion of non-performing loans on the balance sheet has come down in the last decade, but they remain at same level as in the US at the peak of the global financial crisis.”

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