Credit Suisse reiterates overweight on financials, UK insurers
Credit Suisse reiterated its 'overweight' stance on global financials with a focus on names from retail banking and those issues with exposure to emerging markets.
Over the past two months, shares in European lenders had performed in-line with their average bear market rally, outperforming their benchmark by 13%.
However, some European bear market ralies had seen 25% outperformance, strategist Andrew Garthwaite said in a research report sent to clients.
That had also been the case in seven out of the last 15 rallies in Japan.
Garthwaite pointed to bond yields and purchasing managers' indices as the main 'macro-drivers' for his call.
"We think that the risk is bond yields head higher than clients believe (as governments ease fiscal policy and move away from NIRP, US wages grow, headline inflation accelerates, and the BoJ and ECB start to run out of bonds to buy in 2018)," he said.
European Banks were now cheap versus the market in terms of both their price-to-earnings and dividend yield - for the first time since 1999 - with the 2018 yield of 6.2% the highest in the market.
"Price-to-tangible book relative to US banks remains extremely depressed," he further said.
Of interest, the strategist highlighted how Danish and Swedish banks sported the loftiest return on equity multiples in the world despite operating in the most negative and prolonged NIRP environment, thanks to their concentrated banking systems.
Within the same note, Credit Suisse stuck to its 'overweight' on UK life insurers.
"They look abnormally cheap versus fund managers with less regulatory, litigation and taxation risk than the banks. Long term, we are more cautious of financials given regulation and fintech risks."