More to Come From Banking Stocks

More to Come From Banking Stocks

Investors have shunned banking stocks since the financial crisis broke out ten years ago. Signs are mounting that the sector is due for a recovery in markets across the globe.

The development of the U.S. stock market is a bellwether of where stock markets are likely to head. If prices are up in the U.S., they are prone to follow in other markets too – as is currently the case with banking stocks.

The shares of J.P. Morgan, Citigroup and Bank of America advanced as much as 30 percent last year, boosted by expectations about deregulated financial markets, as promised by U.S. President Donald Trump and after the round of tax cuts decided at the end of the year.

Asian Return to Favor

Asia equally is seeing a sway in sentiment back towards certain banking stocks as investors look to cash in on the improving economic outlook across the region. Chinese banks – once given the cold shoulder – are now back in favor. Agricultural Bank of China surged 16 percent this year so far to overtake Citigroup in market cap. 

Bank of China was also up 17 percent this year – a change of pace for a sector that spent much of the last few years under fire.

Singapore Powering Ahead

Singaporean banks are drawing firepower from their private and consumer banking businesses, Deutsche Bank analyst Franco Lam said recently. This is giving them the edge over other U.S. dollar-leveraged markets such as Hong Kong.

Between the two Asian wealth management centers, Singapore banks DBS, OCBC and UOB have benefitted from increasing their share of Asia’s burgeoning private banking business. Deutsche Bank also upgraded UOB, which it considers the most undervalued among the three local banks, with a target price of $30.60.

Others Struggle

On the other hand, the German lender is downgrading Hong Kong’s Hang Seng Bank to «sell,» believing it will incrementally find it more difficult to maintain its dominant market position.

Both Hong Kong and Singapore markets however should remain the key private banking locations in Asia for the foreseeable future and banks in both centers will benefit from rising wealth from onshore and offshore markets. 

The Asian contribution to HSBC's performance is showing no signs of slowing down, with over 70 percent of the group’s adjusted profit in the first nine months of last year originating in the region.