Deutsche turns negative on European banking sector

Less than two months after their own bank completed an €8bn capital raise, equity strategists at Deutsche Bank have downgraded their views on the European banking sector to underweight, blaming “fading Euro area growth momentum”.

In a note to clients, the strategists say banks are “among the sectors most sensitive to swings in Euro area PMI momentum and tend to underperform when it turns negative”. The PMI, or purchasing managers indices, are key indicators of euro zone confidence and growth.

The cross-sector eurozone-wide composite PMI is currently at 56.8, implying annual economic growth of 3 per cent growth. Deutsche’s economists believe economic growth for the year will in fact be just 1.8 per cent.

It’s not all bad news for the financial sector; Deutsche’s experts expect “PMI momentum to trough later in the year, at which point we will be looking to turn more positive on banks, especially given that our sector analysts see upside for the sector over the next 12 months”.

Until then, they suggest buying energy and construction material stocks, two sectors Deutsche has just upgraded to ‘overweight’.