Let’s start with the conclusion: European financial stocks are consolidating after a strong run up, because German yields started consolidating. Investors looking for exposure to financial stocks are recommended to look into Canada banking stocks as that is the place to be currently. Check out our 3 Canadian Bank Stocks To Buy For 2018.
European financial stocks are strongly correlated to German interest rates, and that is what we show on the chart:
- The light grey line represents 10 year German rates. It shows the runup from early 2017 until this summer, which got followed by a sideways pattern.
- The black line represents EUFN, an ETF with European financial stocks. After a huge rally this year the sector started consolidating very recently.
Given that 10 year German rates are mostly a leading indicator we believe that financial stocks in Europe are up for a consolidation period.
Investors looking for exposure in European financial stocks should monitor which of those stocks stay strong during this consolidation. Those sector leaders should be accumulated over time.