The global banking sector rallied hugely in the second half of 2012 – especially in the West – after European Central Bank president Mario Draghi’s pledge to do “whatever it takes” to save the eurozone ended the tail-risk of financial collapse.
The MSCI World Banks index rose by 16.2 per cent in the second half of 2012, while the MSCI World index rose by 8.7 per cent – although some developed banks performed far better, with Lloyds rising by 54 per cent in the same period.
So far this year the banks have been lagging their peers in the financials sector such as insurance companies and asset managers, but Mr Yakas believes they are poised to outperform and is boosting exposure in his Financial Opportunities fund.
“Banks still look very attractive on a price-to-book valuation basis,” he said. “We are less than a third of the way through the rally in banks and there is a lot of potential for valuations to normalise.
“Going forward, without question the best opportunities in financials lie in the banks because valuations are so low. Banks have lagged a little bit and their valuations look better than other specialist financial firms.”
Mr Yakas has recently been adding exposure to banks with a focus on eastern Europe, particularly Austrian bank Raiffeisen, which he says has an extremely low valuation.
His reasoning is that investing in eastern Europe is a geared play on a recovery in western Europe.
The recovery in the European banking system is something Mr Yakas is geared fairly heavily towards in his fund, and he has been adding to this over the past six months.
“The issues are not resolved, but as time goes on the European banks are increasing their capital naturally,” he said.
“Many of the banks, for instance BNP Paribas, are now in quite strong positions, and there are opportunities in those stocks which have underlying profits that are very strong, such as BBVA in Spain, which is doing very well from its big Mexican business.”
The manager brushed off concerns that banks may never get back to the profitability they had pre-crisis because of stricter regulations and the need to hold more capital – which has led many analysts to believe the upside is limited.