Banks trading at crisis levels; car sector cheapest since 2001


Morgan Stanley | European banks trading at crisis levels. The car sector is the cheapest it has been since 2001. Our latest monthly review highlights two observations about tendencies, sentiment, valuation and fundamentals for European sectors:

1. Banks: together with Telecoms, this is the worst performing sector this year and the most oversold in Europe. None of the shares in the sector has beaten the market in the last three months. They have been weighed down principally by profit revisions much worse than other sectors (the worst ratio of revisions in the market, in three year lows). In terms if valuation, most interesting is that the sector is trading with a 73% premium so far this year relative to the market (6.7% vs 3.9% market) in levels only seen during the financial crisis.

2. Car sector: fourth most oversold sector in Europe and although the sector has performed relatively well compared to its global comparators, it is at 6 year lows compared to European equities (Daimler, Renault, BMW .. our main options). In valuation it is trading with a forward P/E of 6.5X (less than a half of MSCI Europe) and according to the average valuation of ratios, the sector has not been this cheap since 2001.