European bank stocks are en vogue again
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13 December 2016
Posted in
Special research
The sentix Sector Sentiment for European bank stocks hits the highest value since January 2014. Investors’ perception inverted by 180 degrees within only a few months. At least in the short-run, the steady rate of bullish conversion strains further outperformance.
Investors memory of the European banking crisis and the Deutsche Bank panic in September 2016 has faded away. The surprising outcome of the US election fires investors’ imagination on higher interest rates. European banks currently do not only benefit from rising interest rates, e.g. a steeper yield curve, but also from investors’ positive economic expectations. First media outlets trumpet the end of the negative yield era for German ten-year Bunds. By now, the performance of European bank stocks starts to flourish even by incremental interest rate increases.
Correspondingly, investors start to revise their opinion on bank stocks. In December, the sentix Sector Sentiment on European bank stocks climbs to a new 36 month high. Within less than six months, investors attitude towards banks changed: an 80% surplus of pessimism has turned into a 37% surplus of optimism (refer to chart).
Rising investor sentiment positively contributes to long-term market development. However, the sentix Sector Sentiment does not only incorporate investors’ valuation towards an equity sector but also a standard sentiment component. Hence, after surging optimism on bank stocks in the second half of 2016, investors should prepare for a possible market correction. Extreme sentiment values are contrarian short-term sell signals.
