Among the most sold off areas of markets in the aftermath of a post-Brexit world, European bank stocks and related exchange traded funds have made a strong rebound off the lows as traders anticipate further monetary easing to support the economy.
The iShares MSCI Europe Financials ETF (NYSEArca: EUFN) gained 2.4% Thursday after rising 7.2% over the past week. In contrast, the broad Vanguard FTSE Europe ETF (NYSEArca: VGK) was 4.2% higher over the past week.
Among country-specific ETFs, the iShares MSCI Austria Capped ETF (NYSEArca: EWO) popped Thursday after the Austrian bank Erste Group Bank surged 13.6% in response to “significantly improved” Q2 results, Reuters reports. The Erse Group Bank makes up 16.3% of EWO’s underlying portfolio and the financials sector accounts for 43.5% of the ETF’s holdings.
European markets, notably the financial sector, have been recovering from a sharp, post-referendum sell-off, partly due to expectations for further stimulus measures from central banks to prop up an uncertain growth outlook.
While the Bank of England left key interest rates at a record low on Friday, the central bank signaled it is readying stimulus measures for August, Bloomberg reports.[related_stories]
“Most members of the committee expect monetary policy to be loosened in August,” officials said, according to the minutes of their July 13 meeting. “The committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”
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Market observers have warned that the ongoing monetary polices and depressed rates would weigh on banks’ bottom line as firms would find it hard to make money with a flat yield curve – banks borrow short-term and lend long-term. However, European growth is picking up, which could trigger greater demand for loans.
“In Europe they are practicing a policy you would not see unless they were in the midst of a global depression, and the data say anything but that,” Jim Paulsen, an economist and strategist at Wells Capital Management, told MarketWatch. “I really think that people are underestimating growth pretty much around the world. We are going into a period where it is heading north, not south.”
iShares MSCI Europe Financials ETF