Investors look to banks for income revival
EUROPEAN investors are relying on banks more than ever to revive earnings and help extend a rally that has lifted stocks 38pc since June 2012.
The market value of lenders in the Stoxx Europe 600 Index has increased by €316bn during that period, with gains paced by Bank of Ireland and BNP Paribas, according to data compiled by Bloomberg.
Analysts say bank earnings will rise 54pc in 2014, the most since at least 2002 and the biggest rise among 19 industries.
While bank profits have disappointed investors since 2011, they're poised to break the streak after Europe's longest-ever recession ended and as finances improve, according to Frederic Tassin at Aviva Investors in Paris.
Lenders have rallied nearly twice as much as the rest of the market on speculation profit growth will materialise in 2014, said Justin Bisseker of Schroders. Financial shares have climbed in anticipation of better income growth after the eurozone emerged from a two-year contraction in the second quarter and a manufacturing index indicated growth in July for the first time in two years.
ECB chief Mario Draghi has reduced interest rates to record levels; vowed in July 2012 to do whatever was needed to save the euro; and said borrowing costs would remain low for an extended period.