StockBeat: Banks Lead the Mean Reversion March

This post was originally published on this site — Europe’s stock markets have started the week with a bang, with a surge in Chinese equities apparently giving investors confidence to put last month’s massive liquidity injection from the £uropean Central Bank to use.

As such, it’s a mean-reversion day, with beaten-down ‘value’ stocks outperforming growth sectors such as technology that have, paradoxically, tended to be the more ‘defensive’ play since the pandemic erupted.

By 530 AM ET (0930 GMT), the benchmark Stoxx 600 was up 1.3% at 370.32, while the German DAX was up 1.5% and the U.K. FTSE 100 was up 1.9%, the latter after the grand reopening of the U.K.’s bars and restaurants on Saturday.

The Stoxx 600 Banks index, a decent proxy for sentiment toward cyclicals and value stocks, was up 3.6% in a bounce that can only be seen as a punt on valuations returning to less depressed levels. Little has happened over the weekend to make European bank stocks a better value proposition: interest rates are set to stay below zero beyond most investment horizons, and there is little that can be done to stop a wave of bankruptcies hitting the sector in the second half of the year, pushing bad loan ratios sharply higher. Still, with European bank shares trading at less than 0.3 times their book value, the risks can look skewed to the upside on a day when summer is in full swing and the TV news isn’t full of Dutch and Austrian politicians grumbling about bailing out the south of the continent.

True, there are a couple of bank-specific catalysts affecting the market on Monday. Commerzbank (DE:CBKG) stock is doing the ‘bounce of shame’, rising 6.9% after the bank’s underperforming management resigned under shareholder pressure on Friday. Asia-focused HSBC  (LON:HSBA) and Standard Chartered PLC (LON:STAN) stock were up 5.1% and 4.1% respectively on a surge in optimism for Chinese assets, while Lloyds Banking Group (LON:LLOY) shares underperformed with a gain of only 0.6% after announcing that respected CEO Antonio Horta Osorio will step down at the end of next year.

In Italy, meanwhile, UBI Banca (MI:UBI) stock rose to a post-pandemic high as Intesa Sanpaolo ‘s (MI:ISP) hostile bid gained support in the teeth of opposition from UBI’s core shareholders. Regulator Consob approved the takeover attempt last week, ramping up the pressure on UBI’s current owners to show that they can deliver the returns promised by Intesa’s Carlo Messina.

The other big ‘mean reversion’ play – namely aerospace – is also notching some big gains, with Rolls Royce (LON:RR) shares rebounding some 6.4% from Friday’s sharp drop, Meggitt (LON:MGGT) shares rising 4.5% and Airbus Group SE (PA:AIR) rising 2.9%. Again, there’s little in the way of news flow to justify the movement. The only data of note on Monday, German factory orders and Spanish industrial production, both came in below expectations.

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