The equity value of European banks, hit by loan losses and historically low interest rates, has slipped below the region’s technology groups for the first time.
The outperformance of tech stocks is most pronounced in the US. The tech-heavy US Nasdaq 100 is the best performing major index in the world, up 27 per cent, while technology groups have provided the bulk of the gains that have pulled the S&P 500 benchmark index of stocks back into positive territory for the year.
But in Europe, listed tech companies are now worth a combined €842bn, above banks’ €822bn, according to Refinitiv. The data provider’s European bank stocks index has dropped by a third this year, making the sector the worst performing in the region, while its tech index is up by 11 per cent.
The share price of German software company SAP — the largest company in the index — is up 14 per cent in the year to date, while chipmaker ASML and semiconductor company Infineon have both gained 19 per cent.
Bank investors, meanwhile, are facing a “gloomy” interest rate outlook that will persist as long as policymakers are seeking to offset the economic damage wrought by coronavirus, said Kian Abouhossein, banking analyst at JPMorgan. The European Central Bank’s call in late July for lenders to freeze dividend payments until at least January is also “one of the key factors in this underperformance,” he added.
In 2010, tech made up just 4 per cent of the MSCI EMU index, which covers large and mid-cap companies in the eurozone, while banks accounted for 24 per cent, according to research by Morgan Stanley. Today, tech is 12 per cent while banks have dropped to 13 per cent, noted Matthew Garman, equity strategist at the bank.
Globally, tech stocks have been among the most resilient in the face of the pandemic, but concerns that US tech companies have become overvalued have contributed to a sell-off in the sector in recent weeks.
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