Len Riddell, the global sector manager for banks at Martin Currie, has started adding developed market banks to his portfolios as confidence grows in a banking rally.
Riddell says he added six new developed bank stocks to the Global Alpha fund since March. These include banks which were caught up in last year’s financial turmoil such as Bank of America, Credit Suisse, Morgan Stanley and Société Générale.
“Fundamentals have changed significantly in recent months and the arguments to remain underweight banks now appear to me to be slightly tired,” he says. “In the short-term I would expect us to be adding to our list of bank holdings, however I would note that I will be watching long-term bond yields very carefully going forward.”
If rates remain below 4% Riddell says developed market banks should continue to lead the market higher, but in the unlikely event that central banks start aggressively raising rates, the banking rally could falter. This, however, remains a remote possibility in the short-term and policymakers continue to target increased lending in the market.