Financial companies should benefit from rising bond yields and a positive economic outlook. In addition, they are very attractively priced, and earnings momentum is positive.

Julius Baer Research expects earnings growth to improve further in 2019, supported by a strong economic backdrop, after many financial companies impressed investors with solid fourth-quarter earnings.

Valuations in the sector remain close to their historical lows, both in absolute and relative terms. With fears of a recession lingering in the markets, financial stocks fell massively in the year-end sell-off, creating attractive buying opportunities for long-term investors.

Financial stocks tend to benefit the most, relative to other sectors, when yields are rising. Although the major central banks are currently taking a wait-and-see stance, our Research team expects that the US Federal Reserve will increase interest rates further in the second half of 2019. This should push yields higher, thus confirming the current favourable environment for financial stocks and justifying our overweight rating for the sector.

Highlights

• All Underlyings (Bank of America, Citigroup, Morgan Stanley) are BUY rated by Julius Baer Research
• Coupon of 12.00% p.a.
• Risk buffer of 37.50%