Banking on a recovery

April 22, 2016 09:00 AM

What a difference a year makes. This time last year investors were particularly bullish on banks as they were expected to benefit from higher bond yields, rising inflation expectations and an improving economic picture. 

Alas a slowdown in China and plunging crude oil prices have changed this outlook. More recently, uninspiring earnings reports and negative interest rates have continued to sap investor confidence, prompting them to dump stocks in this sector.

By mid-March, The MSCI World Bank Index is down more than 22% year-to-date and is underperforming the broader MSCI World Index by about 10%.

Smart Momentum analytics spots negative trends early, helping to limit downside capture and protect profits. This report will utilize momentum analytics to assess the health of the sector as a whole. It will show that Trendrating Smart Momentum analytics began downgrading European Banks as early as May 2015. 

As we can see from “Mixed outlook,” about 60% of bank stocks are currently exhibiting negative momentum. However, about 31% of stocks are in an established upward trend (“A” rated) and these have an average return (since rated) of about 20%. 

However, more worrisome may be the proportion of negative rating during the most recent three months (see “Tough quarter”). This captures the terrible performance in January that affected the banking sector worse than most others. 

Still there were some strong performers along with the dogs, which seemed to be concentrated in Italian banks (see “Winners and losers”).

About the Author

Rocco Pellegrinelli, Trendrating founder & CEO, began his career as a portfolio manager and investment banker and has since been a proven fintech entrepreneur for the past 20 years. He created Brainpower in 1996 and established it as one of the top portfolio management systems globally. After going public on the Frankfurt Stock Exchange in 2000, Brainpower was acquired by Bloomberg in 2006. @trendrating