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Forget about seven wonderful. The septet of large groups of American technology has developed a reputation to be the only game in the city for investors. But some much less fashionable shares have done even better. Is time to take a closer look at Magnificent 47.
The Stoxx 600 Banks Index, which traces 47 of Europe’s largest banks listed, has returned just over 200 percent since the beginning of 2022 factoring in increased stock prices and dividends, according to Bloomberg Data. The so -called seven wonderfuls reached about 190 percent for the same period.
Surprising statistics is partly a reminder of the importance of choosing the right time series – returning to the beginning of 2015 and the return of the banking sector are pretty static; Mag 7 rises to 2,700 percent. Still, it points out that, sometimes, the beaten value reserves again make their heads again.
Should the rally continue? When the shares have had a fiery run, it is easy to absorb in the negatives. After all, no one likes to buy at the top of a cycle, and the environment is eventually becoming more challenging. Banks withdrew forward in 2022 for the same reason that technology shares fell that year – interest rates began to climb. But the rates are falling again, which will weigh the benefit.
However, they are not returning to zero. Analysts expect the return of joint capital to the whole index to dive from 12 percent of 2024 to 11.4 percent to 2025 and 11.1 percent in 2026. This is almost twice what they achieved for most of the decades.
In terms of evaluations, it is also easy to think that banks look ball. The index is trading close to the value of the book, much more than the 10-year average of 0.7 times.
But then, as the graph Mag 7 shows, getting the right start date makes a big difference. Banks of Europe have been dysfunctional for more than a decade; In a long -term horizon, the average price to reservoir is closer to 1.1 times.
Or compare with the rest of the world: the US KBW Banking Index currently trades with nearly 50 percent premium to book, while Global Banks of MSCI ACWI are 1.2 times. Comparison of banks based on prices in profits shows similar trends.
Another important measure is how much money companies can return. By counting dividends and purchases, the sector is currently offering a total payment yield of about 10 percent, much higher than their historic average. This also supports ratings.
The rate of gathering of banking shares in recent years was aided by a very poor starting point. Given the change of the interest rate environment and uncertainty about everything, from commercial wars to local elections, it would be surprising whether they could maintain the pace of flame of recent years. But there is still room for enlargement before the ratings become too magnificent.
nicholas.megaw@ft.com
