Last week three European banks – BNP Paribas, Nordea and Santander – were added to the portfolio.
The portfolio was full of banks for most of the first half of the year, but they were sold in early June, after the French election announcement. I feared the election might cause financial instability in the event of a National Rally victory.
The election is now over. No one party emerged with a majority. This outcome appears the most comforting option for the markets because the resulting political deadlock has removed the possibility of radical policies being implemented, at least for the time being. As a result, the risk premium on French government debt has stabilised.
www.worldgovernmentbonds.com/spread/france-10-years-vs-germany-10-years/
If this stability continues, the investment case for European banks remains compelling.
money.usnews.com/investing/news/articles/2024-07-22/european-banks-earnings-in-spotlight-after-big-share-price-gains
Their shares are cheap yet profitability remains high. They are 43% cheaper than US banks, while the historical average is 27%. This is, in my opinion, too wide of a discount. And although the European Central Bank is reducing interest rates, bank profits should remain resilient thanks to higher lending volumes and buoyant investment banking activity.
I am not, however, going all in on banks, because I consider it possible that the current positive economic conditions might only last for a few more months, before economic momentum turns negative again. The European market is also not doing too well technically. At the moment I want to take on some risk, but not an excessive amount.
2024 performance
@triangulacapital +27.7%
$SWDA.L +13.2%
Portfolio changes
Healthpeak Properties, WPP, RWE and Deutsche Telekom were sold. They were replaced by BNP Paribas, Nordea, Banco Santander and Land Securities.
