Checking the scorecard for global financials

The global financial sector has benefitted over the last year from higher interest rates, steady economic growth and solid financial markets.

Business models are working well and loan books are of good quality and loan demand is strong. Banks are better capitalised, and they are generating cash and sharing it with investors, which is supporting share prices.

It’s important to be selective when investing in financials, as underscored by the high-profile collapses of Credit Suisse and Silicon Valley Bank in 2023, however I am feeling positive about the outlook for the sector. For banks with active trading operations, the volatility stirred by President Trump’s economic and trade policies has added another layer of opportunity, amplifying revenue streams in capital markets.

The KBW Nasdaq Bank Index, which tracks large US financial institutions, rose 19.6% this year through September versus the S&P 500’s 13.6% gain. But smaller banks have fared less well, with the KBW Nasdaq Regional Banking index rising just 1.4% over the same period.¹

In Europe, bank shares have climbed to levels not seen since the 2008 financial crisis. The Stoxx 600 banking index rose 46.5% this year through September, the best return of 20 sectors on the index.²

Opportunities in Europe

For European financials valuations remain attractive relative to U.S. peers, and higher long-term interest rates have delivered a boost to net interest income, a core driver of profitability, the difference between what banks earn from loans and what they pay out in interest for deposits.

We see selective European banks offering the most compelling opportunities, in particular in countries such as the UK, Switzerland, Italy and Spain. Valuations also remain discounted relative to other sectors, and I expect capital returns through dividends and buybacks to remain robust.

Capital quality for European institutions is good, with average CET1 (capital equity tier 1) ratios in the mid-double digits, and healthy pre-provision operating profit growth expected over the next two years. Despite being late in the cycle, management teams are showing discipline: avoiding excessive leverage, maintaining sensible loan growth, and optimizing capital deployment. European Central Bank rate cuts (though paused for now) have been well managed, with net interest income expected to trough in the second half of 2025.

Implications of Fed cuts

In the US, the Federal Reserve’s (Fed) recent 25 basis point rate cut to 4%-4.25%, has set the stage for a more accommodative environment, with two additional cuts expected before year-end. I see positive implications for loan growth, capital markets activity, and fee generation as lower borrowing costs typically stimulate demand across consumer and commercial segments. Banks with strong deposit franchises are well positioned to capture this momentum.

Debt and equity issuance, and refinancing and leveraged buyouts may accelerate, benefiting investment banks such as Goldman Sachs, Morgan Stanley and JPMorgan. Even after the stock gains, many U.S. banking stocks are trading below historical averages on price-to-earnings and price-to-book metrics. 

Fintech winners

Some Japanese banks are stepping onto the international stage with new ambition. Mizuho, Japan’s third-largest bank by assets, has made headlines with its acquisition of Greenhill, a boutique U.S. investment bank. The move is part of a broader strategy to elevate Mizuho into the ranks of the world’s top 10 investment banks.

Beyond traditional banking, financial technology firms are emerging as potential winners of the Fed’s easing cycle, in my view. Bank processors, consumer lenders, and exchanges are well- positioned, in my view. I see fewer compelling opportunities among insurers, however.

The outlook for financials is closely tied to the health of the global economy, and potential risks include cracks emerging in the artificial-intelligence theme, collateral damage from President Trump’s trade policies, challenges to debt markets related to swelling government deficits in the US, a weakening labour market and geopolitical tension.

Nevertheless, based on where we are today, I see the economic environment as supportive for global financials and offering good potential opportunities for investors in the sector, with the caveat that careful selection is vital.

Please take note of the strategy risks: 

• Currency (FX) Risk - The strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall aswell as rise.
• Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
• Market Concentration Risk (Sector) - Investing in a particular sector can cause the value of this investment to rise or fall more relative to investments whose focus is spread more evenly across sectors.
• Derivative risk - the strategy may use derivatives to reduce costs and/or the overall risk of the strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the strategy.
• Liquidity Risk (less liquid securities) - some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the strategy’s ability to meet redemption requests upon demand.
• Liquidity Risk (Unlisted) - The strategy may hold unlisted securities which can be difficult to value and negatively impact strategy liquidity.
• Counterparty Risk - the risk of losses due to the default of a counterparty e.g. on a derivatives contract or a custodian that is safeguarding the strategy’s assets. For a more detailed explanation of risk factors, please refer to the "Risk Factors" section of the Scheme Particulars.

Footnotes

¹ Source for indices’ changes, Bloomberg, as at 1 October 2025

² Source: Bloomberg, as at 1 October 2025

Important information

This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.