Sentiment for Eurozone financials is positive with much of the interest being attracted by asset man...
Sentiment for Eurozone financials is positive with much of the interest being attracted by asset management companies.
The financials sector has picked up from pre-March lows when the bull market in technology, media and telecoms saw the sector oversold to historically low levels.
Now, according to fund managers, the future looks healthy, although most remain convinced that the really attractive growth prospects in the sector are limited to the themes of investment banking and asset management.
Adrian Fowler, European investment manager at Aberdeen Asset Management, says: "We are still broadly positive on European equity markets over the next six to 12 months and would expect returns to be between 10 and 15%."
Yet pressure on pricing and margins from the increasing importance of the internet mean there are, Fowler believes, better rewards to be reaped elsewhere.
He says: "We are looking to reduce the banking exposure over the course of the medium term because of the threats to profitability."
One theme he likes is investment banking, gaining exposure through stocks like ABN Amro, Deutsche Bank and San Paulo IMI.
He says investment banking and asset managers in Europe are backed up by rapidly developing capital markets and the developing equity culture.
Fowler also says financials are being insulated from the rising interest rate climate by the continued robust health of the Eurozone economies.
Margaret McLaren, investment director on the European equities team at Britannic Asset Management, says the group is overweight Eurozone financials, a defensive position that was adopted when the tech bubble drove down the valuations on financials.
McLaren says its initial overweighting was in insurance companies, which led the financials rally as investors rotated away from technology. However, Britannic moved last month to overweight banks as well because valuations were more attractive.
She says: "The next reweighting we are looking at will be downward but we are still quite defensive in the market. We are sticking with it until we are a bit more confident with the growth sectors in the market like technology, media and telecoms."
Despite that McLaren says there are plenty of good Eurozone stocks in the sector. She says European banks are domestic plays which operate in home markets and are not yet suffering under the intense competition of the UK sector.
These plays are backed up by robust economic growth figures, and she says, the threat to financials from the stiff regulation of the UK market is still some way off.
John Hatherly, head of global analysis at M&G, says: "Having had a good run now, we would be much more selective in the approach that we would take towards this sector and we would not expect the recent level of outperformance of the past few months to continue." He says M&A activity has become and will continue to be a feature of the Eurozone financials, particularly as the big insurance players harbour cross border ambitions.
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