|14 January, 2019

Banking a good start to the year: Analysts look to lenders as risk appetite grows

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Traders monitor stocks at the Saudi Investment Bank in Riyadh. Image for illustrative purposes only.

Traders monitor stocks at the Saudi Investment Bank in Riyadh. Image for illustrative purposes only.

REUTERS/Fahad Shadeed

The banking sectors in the United States and the Gulf region have been highlighted as the standout performers to watch since the start of the year, as dovish comments from U.S. Federal Reserve Chairman last week saw global investors showing more appetite for risk and pumping money into stocks and bonds.

Equity funds drew inflows of $6.2 billion, their biggest in 11 weeks, Bank of America Merrill Lynch strategists told Reuters. Some $7.2 billion flowed into bond funds, the biggest amount in 39 weeks, it added.

BAML’s “Bull/Bear” gauge of investor positioning fell to 1.8 last week, what the strategists called “extreme bear territory”, triggering a “buy” signal for equities. (Read more here).


Comments from Powell stressing that the U.S. central bank can be patient in approving any further rate increases triggered relief among investors who were fretting continued rate rises may be a mistake.

Emerging markets also benefited, with both equity and bond funds drawing in $2.4 billion, while high-yield bond funds received $1.5 billion inflows, Reuters said.

The local equity markets in the Middle East and North Africa continued their positive start to the year amid a rebound in oil prices and fresh inflows, Aditya Pugalia, director of financial markets research at Emirates NBD, Dubai’s largest bank, said in a research note on Sunday.

“One common theme across regional markets in the current rally has been the outperformance of banking sector stocks. The S&P GCC Composite Banks index rallied +4.9 percent w-o-w [week-on-week]. The strength in banking stocks can be attributed to positioning ahead of expected strong earnings and dividend season, clarity on Zakat payments for Saudi Arabian banks and continued appetite for mergers among regional banks,” Pugalia said.

This was most evident in Saudi Arabia. While the Tadawul gained 4.9 percent last week, the Tadawul Banking Sector index rallied 7.1 percent over the same period. (Read the full report here).

Banking stocks in the U.S. were also highlighted by Reuters at the weekend. After a miserable 2018, big U.S. bank stocks could be in for a lift if upcoming earnings releases show strong fourth-quarter loan growth, Reuters said. (Read the full report here).

The S&P 500 bank index fell 18.4 percent in 2018 compared with a 6.2 percent drop for the broader S&P 500 as investors fled banks on concerns about slowing economic growth, weakening credit, a flattening yield curve and bets that the Federal Reserve would slow down interest rate hikes.

“With the valuations they’re trading at, we see banks as an extremely attractive buying opportunity,” Lisa Welch, lead portfolio manager for the John Hancock Regional Bank Fund in Boston, told Reuters.

“Bank stocks were acting like the economy in the U.S. was going into a near term recession. We disagreed,” she added. 

Further reading:
ZAWYA Special Coverage: 2018 Year in Review 
Monday outlook: Weak Chinese trade data weighs on Asian shares, oil prices 
Battered U.S. bank stocks may get a boost this year 
Investors plow billions into stocks, bonds and EM assets as risk appetite returns - BAML 
Nasdaq Dubai CEO targets investor and broker growth as it pushes into new markets  
Mideast Stocks: Factors to watch on January 14 
Mideast Stocks: Gulf mostly up ahead of results season, Global Telecom plunges in Egypt 

(Compiled by Shane McGinley; Editing by Michael Fahy)

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Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2019

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