Are European Banking Stocks Cheap Enough to Buy?

European banks look cheap, but investors must acknowledge the enormous complexity in the industry and structural headwinds that could keep profitability low for a long time

Matthias Palowski 15 November, 2016 | 4:02PM
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Banking stocks are one of the most complex and economically sensitive investments any stock picker has in their portfolio, and ever since the global recession, “bank bashing” is a favourite pastime.

However, with Donald Trump now the most powerful man in the world, inflation expectations are rising and bank stocks are a new flavour of the month. This is welcome news to many, but no more-so than those who were burnt in the 2007-2016 period of share-holder value destruction. This is especially true for European bank holders who are still down 67% since the peak of the financial crisis.

As advocates of value investing, the key question is whether bank stocks are a value opportunity or a value trap. We have already begun to see early signs of this sentiment shift, with European banks up 24% since June 30, and 8% alone since the Trump victory.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Matthias Palowski  is a Senior Investment Analyst for Morningstar Investment Management