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CNBC
15-07-2025
- Business
- CNBC
Fund managers are going all-in on Europe's banking stocks, Bank of America finds
Fund managers are becoming increasingly bullish on European equities, according to the latest iteration of Bank of America's European Fund Manager Survey. European stocks have broadly enjoyed a significant rally this year, amid a diversification away from U.S. assets , the promise of massive fiscal stimulus in Germany , and a bull run in the region's defense sector . Between July 4 and July 10, BoA polled 222 fund managers who collectively manage assets worth $504 billion. The findings, published Tuesday, showed that a net 81% of European investors see upside for European equities in the coming 12 months, with the proportion of managers overweight on the region — a net 41% of respondents — hitting a four-year high. Last month, 75% of fund managers told BoA they were forecasting upside for European stocks over the next 12 months. More than 20% of those invested in the region said they believed the upside for regional stocks in the coming year would be more than 10%. It's important to note, however, that the survey was completed before U.S. President Donald Trump announced plans to slap 30% tariffs on goods imported from the European Union . Three-quarters of the fund managers polled told BoA that they believe German fiscal policy, European defense spending and further regional integration can end Europe's structural underperformance. Fiscal easing was seen as something that should help "insulate the region from US headwinds." Meanwhile, 23% of fund managers said they were underweight U.S. equities. According to the survey results, 63% of those surveyed are anticipating economic growth in the United States will slow in the coming months — but BoA's strategists said in a note accompanying the findings that "Europe is seen as immune." "[Sixty-three percent] think European fiscal spending will be impactful enough to lead European macro and markets to decouple from US policy headwinds, up from 25% last month," they said. "This has also led investors to turn less sanguine on the European inflation outlook, with a net 4% seeing scope for European inflation to rise over the next twelve months, the highest since March 2022." Where is the money going? When it comes to how fund managers are allocating capital to Europe, regional banking and technology stocks led the way, with more than one in five saying they were overweight on those sectors. European banks outperformed almost every other sector in the region in the first half of the year, with the Stoxx 600 Banks index gaining almost 30% in the first six months of 2025. Several European lenders, including Deutsche Bank and Barclays, hit decade-highs in recent weeks amid strong returns and a flurry of M & A activity. More than half of the fund managers surveyed by BoA said the European banking sector "still looks attractive after the strong rally." Other European sectors favored by fund managers polled by BoA this month included industrial goods and services, insurance and construction. Around one in three European investors said they expected industrials to be the best performing sector in the coming 12 months, with one in four saying the same about financials. Meanwhile, 44% said they were expecting small cap stocks to outperform European large caps — a notable rise from the 7% who held the same view in June. At the other end of the scale, around 30% of fund managers told BoA they were underweight on Europe's autos sector. Regional auto giants have been left reeling from Trump's tariffs regime, with companies in the sector suspending financial guidance and already reporting drops in profit after the industry was hit by a 25% U.S. tariff back in April. The sector is one of the most exposed to U.S. tariffs on European goods, with the Stoxx Europe Automobiles and Parts index falling almost 3% so far this year. European retail, mining and media stocks were also among the most unloved sectors among fund managers in July, BoA's survey results showed. Germany's in, Switzerland's out When it comes to individual countries in Europe, BoA noted that "Germany remains the most preferred equity market in Europe, followed by Italy, while Switzerland is the least preferred, followed by France." Around 40% of fund managers named Germany as their preferred equity market in Europe. The country's benchmark DAX index has surged almost 22% this year, thanks to major rallies among the likes of arms manufacturer Rheinmetall , up around 200% year-to-date, and Commerzbank, which has added 84%. Germany's MDAX index, home to the country's midcaps, has also added 22% since the beginning of 2025, lifted by a regional bull run in defense that has boosted German defense players Renk , Hensoldt and Thyssenkrupp by 310%, 204% and 182%, respectively. Meanwhile, around 40% of the fund managers polled by BoA said they were underweight Switzerland. Switzerland has come under pressure in recent months, as market volatility fueled demand for its safe haven currency — but a rising Swiss franc creates various challenges for domestic policymakers. Any intervention in the FX market, however, could cause contention in the U.S., where the government has placed Switzerland on a "Monitoring List" of trading partners "whose currency practices and macroeconomic policies merit close attention." — CNBC's Jenni Reid and Ruxandra Iordache contributed to this report.
CNBC
06-07-2025
- Business
- CNBC
European banks saw their best first-half since 1997, but maintaining returns will be a challenge
European banks have had a bumper start to the year, outperforming almost all other sectors as investors reward a recent period of improved profitability — but analysts warn returns may not have as far to run in the second half. The Stoxx 600 Banks index has risen more than 28% in the first six months of this year, the strongest performance for the period since 1997, according to FactSet data. Gains have seen several banks hit decade-highs in recent weeks , including Deutsche Bank and the U.K.'s Barclays , after those lenders weathered recent market volatility to deliver strong investment banking returns . In southern Europe, lenders have been riding the high of increased M & A dealmaking, with recovering volumes and a "stabilizing" market in Spain, where the country's largest bank Intesa Sanpaolo flagged a " substantial increase " in such transactions during the second half of last year. Governing the recent landscape have also been cost-cutting and restructuring pushes, with HSBC , Santander , UBS , Societe Generale and Deutsche Bank executing revamps, along with a new focus on structured financial products and trading. European banks have meanwhile significantly boosted their profits over the last three years as central banks dragged interest rates out of a decade of ultra-low territory, a shift that appears to have been belatedly priced in this year — even with rates now falling . "One might argue that investors still didn't fully believe there had been structural change in profitability at European banks, and were concerned about lower rates causing a decline as sharply as it rose," Johann Scholtz, senior equity analyst at Morningstar, told CNBC. "But the guidance that we saw, especially after full-year and first quarter results, pointed to margin expansion at the thin end but also the impact of lower interest rates not filtering in in a full way into profitability," he said. The move out of negative rates in the euro area in 2022 had a greater impact on bank margins than the subsequent moves higher and lower within positive territory, Scholtz continued, with the latter still leaving lenders with room to maneuver via lengthening the duration of their balance sheets and hedging exposures. Many are also now benefiting from action taking during the ultra-low rate period, such as branch closures and increases in their capital under regulatory pressure, he added. M & A boom Among the strongest performers have been France's Societe Generale and Germany's Commerzbank , which have both seen their shares rocket roughly 80% in the year-to-date. As well as delivering sharply higher annual profit last year , Commerzbank has been buoyed by takeover interest from Italy's UniCredit . The sharp increase in its value since then led UniCredit CEO Andrea Orcel to tell CNBC last month that he now sees Commerzbank as too expensive to justify an acquisition, calling any bid "far away." CBK-FF 1Y line Commerzbank share price. Wider merger courtships still abound as cash-flush European banks hunt to achieve the scale of their U.S. peers, driving up the shares of many in the process. Santander this week unexpectedly announced it will acquire British high street lender TSB from Sabadell , while several other bids still hang in the balance. Sabadell itself is trying to shake off the advances of Spanish rival BBVA , and may have received some relief from Madrid's pronouncement that such a merger may only proceed if the two banks do not integrate operations for at least three years. BBVA-ES 1Y line BBVA share price. As well as increasing its Commerzbank stake to a significant 28% , UniCredit has launched an offer for Italian lender Banco BPM , though faces pushback from both the Berlin and Rome administrations. Also in Italy, Monte dei Paschi (MPS) is pursuing a reluctant Mediobanca , with MPS CEO Luigi Lovaglio on Friday saying that securing even just 35% of its takeover target would be enough to control it, according to Reuters. Defense has been one sector to outpace banking gains this year, with the Stoxx Aerospace and Defense total market index soaring nearly 50% this year, against 38% for Stoxx Banks (a wider gauge than the Stoxx 600 banking index). But banks, particularly German lenders, are also benefiting from a defense boom, with the sector set to offer a long-term stream of opportunities. That's amid Europe's 800-billion-euro ($942.6 billion) ReArm drive and the Berlin administration's pivot to relax its fiscal rules, both unveiled in spring. In addition, NATO last week announced intentions to raise individual allies' financial commitments to 5% of their individual gross domestic products by 2035. Second-half concerns Morningstar's Scholtz said that following the strength of first-half gains, he was "starting to view the sector as relatively fully valued." Market sentiment could remain positive, but Scholtz said he struggled to see a catalyst that would significantly boost banking profitability going forward, likely leaving the best-case outcome as stability — and with risks coming from a fall in banks' loan loss provisions or an increase in defaults.
