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Bank stocks are expected to set their best year since the global financial crisis

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Global banking stocks are expected to have their best year since the outbreak of the financial crisis, benefiting from the expectation that interest rate makers’ struggle against general inflation will lead to rising borrowing costs.

As of 2021, the MSCI benchmark index (in U.S. dollars), which tracks global banking stocks, has risen about 30%, which is stronger than the industry-wide index of the index provider of about 20%.

Banks have never realized such gains since 2009, when the same MSCI stock index rose by more than one-third, as banks recovered from the abyss of one of the worst crises that hit the financial industry.

Scott Ruesterholz, fund manager at Insight Investment, said that in recent months, Bank of America has been particularly boosted by the healthy trading volume of its trading business, “extraordinary” transaction advisory activities, and the release of reserves set aside to cover bad debts. “This is an extraordinary operating environment.”

The KBW index, which focuses on Bank of America, has climbed more than two-fifths this year, making it the best annual performance ever. This improvement is in stark contrast to 2020, when the same index fell by about 14% as the pandemic prompted central banks to reduce interest rates to historical lows, thereby reducing the loan interest rates that banks charge to customers and the interest rates they pay for customers The difference between deposits.

The performance of banks around the world diverged over a longer period of time, with the United States far outpacing Europe. On a five-year basis, the MSCI index, which focuses on Bank of America, has risen by more than 60%, while its European equivalent (denominated in US dollars) has fallen by 2%.

The line chart of Rebased to 100 shows that bank stocks generally outperform broader corporate indicators

Beata Manthey, an equity strategist at Citigroup, said that banks tend to follow the trend of 10-year US Treasury bonds. He expects the yield on benchmark government bonds to reach 2% by the end of this year-higher than current levels. About 1.6%. Bond yield is inversely proportional to price.

UBS Chief Investment Officer Mark Haefele pointed out that, like energy stocks, “the financial industry has performed well from the recovery, but if inflationary pressure is too great, they can also perform well.”

The U.S. Consumer Price Index, a key inflation indicator, rose 6.2% in October from a year earlier, the fastest increase since 1990. Data last week showed that British inflation reached 4.1% in the same month.

In turn, traders are now betting that the Bank of England will increase borrowing costs from the current 0.1% to 0.25% in December, after the Bank of England unexpectedly decided to keep interest rates unchanged this month.

Subsequently, the market is considering “maybe [0.75 per cent] Fidelity fund manager Alex Wright said that by the end of next year, interest rates will be reduced to 1% in the UK. He said that this situation will increase the profit of the British retail bank NatWest by 24%, while the profit of Lloyds Bank will increase by 12%, and the profit of Barclays Bank will increase by 8%.

Up 1 percentage point [at the ECB and the Fed] According to Autonomous Research analyst Stewart Graham, this will also increase the earnings of U.S. banks by 17% and European banks by a quarter.

These expected increases have strengthened analysts’ bullish sentiment. Half of the investors surveyed by Bank of America this month said that according to 2003 data, they increased their holdings of European banks, the highest percentage on record.

Bill Nygren, chief investment officer of Harris Associates US equities, expressed optimism that bank stocks will continue to climb, albeit with a low base. “We have gone through a long steep slope, and now we have had a small bounce on Rabbit Mountain,” he said. “But we think’normal’ may be much higher than today.”

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