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Home>These banks are about to jump 10-15% as they play catch-up with Wall Street

These banks are about to jump 10-15% as they play catch-up with Wall Street

These banks are about to jump 10-15% as they play catch-up with Wall Street

10/03/2017

By Sara Sjolin, MarketWatch

European banks are up 35% over past year, but rally isn't over yet

European banks have lagged behind their U.S. counterparts over the past years, but an improving economic landscape, marked by shrinking unemployment, healthy growth and the highest economic confidence in a decade, may help to change that dynamic, said one strategist.

Presently, the Stoxx Europe 600 Banks index is trading 65% below its 2007 peak, while the SPDR S&P Bank ETF (KBE)--an exchange-traded fund that mimics the banks in the S&P 500 -- is 25% from its postcrisis top.

But that disparity may be good news for investors looking to opportunistically bet on Europe's rosier growth picture, according to Peter Garnry, head of quantitative strategies at Danish investment bank Saxo Bank. He makes the case that European banks are on track to catch up with their U.S. rivals, forecasting a 10-15% rally in European lenders over the next 12 to 18 months.

"No matter where you look in Europe, everything looks pretty, pretty solid and I think that's the main driver for banks," he said.

"I always say Europe is probably 2-3 years behind the U.S. and that's still probably the case," Garnry said.

"Europe is enjoying high growth right now and it's pushing down unemployment rates. So, if you look at how banks have performed in the U.S. and assume a similar trajectory in Europe, then as the unemployment rate ticks down, you'd continue to see positive performance among the banks," he said.

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