European banks are finally showing signs of recovery and investors should be looking to reduce their bearish positioning in the beleaguered sector, according to Barclays strategists.
In a note Barclays strategists projected that the stabilization of eurozone economic data and bond yields may bolster the banks, which have the most positive correlation to these two metrics of all European sectors.
“Eurozone composite PMI (purchasing managers’ index) is stabilizing and the key domestic drivers of activity are well oriented,” the note stated.
It added that in the meantime, bond yields and inflation expectations are “trying to find a floor,” which gives a breather to value stocks, those which trade at a lower price relative to their fundamentals.
On top of this, the Italian government is “showing some fiscal discipline” and the European Central Bank (ECB) has opened the door to new quantitative easing while “seeking to mitigate the drag from negative rates on banks.”
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