Banking on a recovery?
In the wake of Russia’s invasion of Ukraine and ensuing sanctions, shares in European banks have performed weakly. Since the beginning of the year, Swedish banks have underperformed but have actually fared less bad than their European peers since the start of the war on February 24.
In the wake of Russia’s invasion of Ukraine and ensuing sanctions, shares in European banks have performed weakly. Since the beginning of the year, Swedish banks have underperformed but have actually fared less bad than their European peers since the start of the war on February 24. We believe one explanation is that the direct exposure to Russia and Ukraine is small. However, one should note that both Swedbank and SEB have substantial operations in the Baltics, and some of its corporate clients there may be affected as trade with Russia will likely suffer.
Since March 8, OMXS30 has recovered some twelve per cent. We believe Swedish bank shares are well-positioned if the ongoing bounce in global stock markets continues.
One reason is the poor relative price performance YTD, as mentioned above. SEB A is down some 16 per cent, and Nordea is down ten per cent (the dividends have already been paid out).
Also, bank valuations are low, with PE and Price/Book ratios below ten and close to 1x, respectively, at the same time as dividend yields are 6-12 per cent. (Source: S&P Capital IQ).
Further, Swedish banks could benefit from rising interest rates. Unlike the US, the yield curve in Sweden is steepening.
SEB A (in SEK) 12-month chart
The SEB A share has moved above MA20and Fibonacci 38.2 levels and has positive short-term momentum. From a technical point of view, we see the potential for the shares to appreciate to slightly above SEK 112 (MA50 and Fibonacci 50 levels)
SEB A (in SEK) weekly five-year chart
The full name for abbreviations used in the previous text:
EMA 9: 9-day exponential moving average
Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.
MA20: 20-day moving average
MA100: 100-day moving average
MA200: 200-day moving average
MACD: Moving average convergence divergence
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