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Opinion

Macaskill on markets: Bank shares and the Charlie Brown trap

Bank shares have bounced back from recent lows in early 2019, but investors tempted to bet on a sustained rally risk yet another year of disappointment.

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The Peanuts comic strip features a recurring gag where Charlie Brown is convinced to run up and kick a football, only for Lucy to pull the ball away at the last moment. Investors tempted to take a punt on a recovery in bank share prices can be forgiven for worrying that a bet on a prolonged rise in values will prove to be a similar triumph of hope over experience.

A global slump in bank stocks in December was followed in January by poor quarterly trading results from most firms, while a partial US government shutdown prevented the SEC from approving IPO paperwork, ensuring that the year in deal making got off to a slow start.

Bank stocks have nevertheless performed strongly, leading analysts and investors to wonder if 2019 will be a year of recovery, despite the formidable array of risks on the horizon. The KBW Nasdaq index of US bank stocks was up by around 14% for the year by late January, while the comparable Euro Stoxx bank index was up by 8%.

The European index was still down by almost 30% on a trailing 52-week basis, however, and many of the bigger banks from the region trade at levels well below the nominal value of their assets.




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