Buying opportunities in European bank shares
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BUYING OPPORTUNITIES IN EUROPEAN BANK SHARES
European banks have been quietly outperforming in 2024 but their current valuations still provide a buying opportunity if investors are selective, according Helen Jewell, CIO at BlackRock Fundamental Equities, EMEA.
An index of European banks .SX7P is up 17.6% year-to-date, outperforming an 8.8% rise for the STOXX 600 .STOXX, according to LSEG workspace.
"European bank valuations sit at a PE ratio of just 6x today, versus a long-term average of around 13x since 2004," said Jewell - a buying opportunity but one that requires selectivity.
She highlights three tends from Q2 earnings season for European banks.
Firstly is loan growth, especially at Spanish and Irish banks, a healthy sign for the economy that she doesn't think is reflected in bank valuations.
The second is deposit growth across Europe, and third is attractive capital return plans.
Jewell's team like those banks with a strong retail franchise that are in a good position to capture deposits as wages grow.
"We also like some of the banks that plan to return lots of cash – meaning investors are “paid to wait” for valuations in select names to rebound to a level we believe is more appropriate given earnings potential," she said.
(Lucy Raitano)
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