Deutsche Bank strategists back favouring the banking and financial sector,on expectations that "cyclical" stocks - those most sensitive to the state ofthe global economy such as banks or miners - will outperform more defensivesectors as the economic environment improves.
"The European equities rally earlier this year was led by defensives, notcyclicals - which we expect will benefit most in an equities re-rate. Withincyclicals, we expect financials to be the most attractive sector as the impliedcost of equity is now retracing mid-crisis levels, and a positive credit impulsesurprise would benefit banks the most," it writes in a research note.
Deutsche Bank recommends building up exposure to a possible rally inEuropean bank stocks by buying futures contracts on the euro zone's Euro STOXX50 bank index and on the broader pan-European STOXX Europe 600 BankingIndex.
The Euro STOXX 50 bank index has edged down by 0.4 percent since thestart of 2013, underperforming a 3 percent rise on the broader Euro STOXX 50index, while the STOXX Europe 600 Bank Index has risen 5percent - again slightly underperforming a 6 percent rise on the broaderEuropean STOXX 600 index.
Earlier this week, several leading European banks posted first-quarterresults that beat market forecasts, such as Deutsche Bank, Lloyds and UBS.
Reuters messaging rm://sudip.kargupta.thomsonreuters.com@reuters.net
Lloyds (LLOY)