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Morgan Stanley: the time has come to bet on Spanish and European banking


The time has come to bet on Spanish and European banking. It is the opinion of analysts of Morgan Stanley, which they recently advised betting on Spanish and European periphery shares. His advice so far has been very profitable, since since last Monday the Ibex It has bounced 6%.

For the US bank, the recovery fund of 750,000 million euros proposed by the European Commission it is a very important measure. Although its economists do not expect the proposal to materially alter the eurozone's long-term growth trajectory, "it does suggest a more coordinated and stronger entity in the future, which reduces downward cyclical and structural risks for European assets, "they state.

Its forecast is that the risk premiums of peripheral debt will continue to drop, which will undoubtedly benefit European stocks and particularly the financial sector. This Thursday, the Spanish risk premium fell from 90 points for the first time since March.

"We overweight Banks and Insurers. Relative valuations remain low against historical valuations, and tighter debt spreads and higher yields should be positive for both sectors, "these analysts say.

Morgan Stanley anticipates that risk premia will continue to relax and that the euro will maintain its current strength against the dollar. And points out that European banks are 30% cheaper than fixed income assets which they use as a 'fair value model', such as the German 10-year bond.

The firm adds that, despite the rebound of 20% registered in the last two weeks, "European banks are still 29% cheaper than fair value", and that the recovery fund and new incentives applied by the European Central Bank "They should allow this discount to be reduced materially."

Furthermore, they consider that the revaluation of banks could be greater if the bond market reacts to the recovery fund proposal with tighter peripheral spreads. His estimate is that the euro area banking sector as a whole has a bullish potential of 25%, in the same line as the insurance sector.

However, they recognize that banks will not regain their 2019 profitability until 2023Although the collapse they have suffered due to the Covid-19 pandemic justifies their current commitment to values ​​that they consider to be highly oversold. The bank stocks that they consider most attractive at current prices are Santander, CaixaBank, MedioBanca and UniCredit.


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