Outlook 2024: Financials – Opportunities throughout the cycle
Guy de Blonay discusses why he thinks the macroeconomic and market backdrop could improve for financials and financial technology stocks as 2024 progresses.
Cyclical value…
For now, we remain focused on identifying “cyclical value” investment opportunities, finding the most value in more traditional financial sectors, especially banks, as well as having some exposure to insurance companies that are benefitting from a favourable rate market. We have been particularly interested in identifying banks that are not only benefitting the most from a higher interest rate environment, but that also have decent exposure to fee income as the rate rise narrative slows down.
Several European banks are redistributing a significant proportion of their excess capital back to shareholders – many are offering total yields (i.e. dividends and buybacks) north of 10%. At the same time, these banks are generally trading at historically low multiples, with several names currently trading at around half the price-to-earnings multiples they were trading at around a decade ago. If we were to see a soft landing in Europe rather than a recession, concerns around asset quality deterioration would likely be short lived, which could be very beneficial for European banks’ shares too – and arguably, we are starting to see some of this being priced in.
Outside of Europe, we have some limited exposure to emerging market banks (e.g. in Georgia and Brazil), where we are also able to find attractive yields. Our positions in emerging market banks are trading on even lower multiples than many European banks, but with a significantly higher return on equity.
In the US, a fall in yields would bring down the unrealised losses of banks’ bond portfolios, which could bring significant relief to a sector that has been negatively impacted by the fallout of the collapse of Silicon Valley Bank in early 2023 and a recent tightening in regulation. If we add to this the possibility of a soft landing, we could see a vastly improved environment for US banks in 2024.
…to cyclical growth
Focusing on the longer-term trends
Nevertheless, regardless of what happens in 2024, over the longer term, we continue to look beyond the noise, to focus primarily on identifying innovative and dynamic companies that should benefit from continued long-term structural trends and drive change in the financial services sector. We focus on companies that we believe can successfully harness technology to cut costs, improve customer experience and tap into new markets, to ultimately gain ground over competitors that are too slow to adapt.
Within our strategy, we can invest across geographies and subsectors, through three key categories – growth, yield and special situations. By taking an active, dynamic approach to capital allocation, we are able to adjust our weightings in each of these categories, to suit the current macro environment.
Outlook 2024: A pivotal year?
Periods of transition often raise interesting questions, and this year investors are faced with plenty as they look ahead to what 2024 may bring. Will Western central banks finally start cutting interest rates? Will geopolitical tensions calm or further escalate? And what might a fraught US Presidential election mean for the world?
Outlook 2024 Articles
A barbell approach to leisure sector credit
Outlook 2024: Japan’s radical restructuring
Outlook 2024: India’s booming as voters back pro-growth Modi
Emerging Markets Outlook – set to shine
Outlook 2024: Why quality matters in European equities
Outlook 2024: investing sustainably for the decades ahead
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information