Banking on Europe

Focus: GLOBAL

Yiannis Mostrous Image Yiannis Mostrous Editor, The Capitalist Times

The big positive in Europe is that more countries have been growing faster than expected. Therefore, current economic strength can be sustained, although probably without much more acceleration, into next year, notes Yiannis Mostrous, global expert and editor of Capitalist Times.


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Mario Draghi, the head of the European Central Bank (ECB) and arguably the smartest of the developed economies central bankers, has played a key role in regaining the eurozone’s economic footing. His policies remain accommodative, although he’ll also eventually have to take a more restrictive stance.

Financial stocks are the best way to profit from the eurozone’s potential upside. European banks, in particular, are currently experiencing positive earnings and dividend momentum. This latter dynamic is the strongest it’s been in eight years.

The ECB should make its first rate hike sometime next year. This increase will be the final catalyst for better bank earnings and commence a new cycle of higher earnings expectations by the market.

European banks are currently experiencing positive earnings and dividend momentum. This latter dynamic is the strongest it’s been in eight years.

As noted above, the ECB could make its first-rate hike sometime next year. This increase, whenever it comes, will be viewed as a positive for the currency and bank stocks. Such a move will prove to be the final catalyst for better bank earnings and should commence a new cycle of higher earnings expectations by the market.

French, Spanish and Italian banks are the most geared to benefit from rate normalization in Europe.

 
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