It has been a busy Friday for equity-rating changes, with many of the investment houses focusing on the banks sector. The Stoxx Europe 600 banks index has risen around 4.6% this month and with the second longer-term refinancing operation (LTRO) from the European Central Bank due next week, there could be further gains. Here's what some of the big-brain analysts are saying about the banks:
Barclays Capital has downgraded the European banks sector to underweight from market weight. The brokerage thinks the imminent LTRO is already priced in, following the sector's stellar performance since November 2011. "In addition, risks from deleveraging, regulatory reform, and earnings downgrades remain," said BarCap. Also, BarCap has upgraded the retail sector to market weight from underweight. To balance the rotation, it has upgraded food & beverages to market weight. Overall for European equities, BarCap thinks, in the short term, the rally could continue through February as financial conditions continue to improve.
Meanwhile, BofA-Merrill Lynch has said investors need to focus on stock picking in the European banks sector. It thinks the scope for further re-rating across the entire sector is limited in the near term. The brokerage sees investment banks as best positioned to deliver positive earnings per share surprises in the near term and has consequently upgraded Deutsche Bank to buy from neutral. Along with Deutsche Bank, Credit Suisse, Barclays, Lloyds Banking Group and UniCredit are its top picks.
Sticking with the banks, Credit Agricole has been downgraded to sell from hold by Societe Generale following its fourth-quarter results, released on Feb. 23. Societe Generale said Credit Agricole's fourth quarter was affected by EUR2.5 billion of impairments and EUR500 million of deleveraging costs (after tax). But the loss was bigger than expected mainly due to higher impairment charges related to Greece.
That's enough with the banks today, so let's move on to basic resources. J.P. Morgan Cazenove has downgraded Anglo American to neutral from overweight on valuation grounds, after another round of earnings downgrades post results, primarily driven by a more conservative than expected outlook in the copper division. Elsewhere, JPM has cut Tullow Oil to neutral from overweight. It thinks Tullow is well placed to create more value in the longer term, especially in South America. However, in the short term, the brokerage is concerned that a substantial amount of exploration success is now priced in. At the same time, the brokerage has upgraded Enquest to overweight from neutral as its valuation looks more attractive, especially on a relative basis.
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