Deutsche Bank strategists back favouring the banking and financial sector, on expectations that “cyclical” stocks - those most sensitive to the state of the global economy such as banks or miners - will outperform more defensive sectors as the economic environment improves.
“The European equities rally earlier this year was led by defensives, not cyclicals - which we expect will benefit most in an equities re-rate. Within cyclicals, we expect financials to be the most attractive sector as the implied cost of equity is now retracing mid-crisis levels, and a positive credit impulse surprise would benefit banks the most,” it writes in a research note.
Deutsche Bank recommends building up exposure to a possible rally in European bank stocks by buying futures contracts on the euro zone’s Euro STOXX 50 bank index and on the broader pan-European STOXX Europe 600 Banking Index.
The Euro STOXX 50 bank index has edged down by 0.4 percent since the start of 2013, underperforming a 3 percent rise on the broader Euro STOXX 50 index, while the STOXX Europe 600 Bank Index has risen 5 percent - again slightly underperforming a 6 percent rise on the broader European STOXX 600 index.
Earlier this week, several leading European banks posted first-quarter results that beat market forecasts, such as Deutsche Bank, Lloyds and UBS.
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