Most U.S. banks passed their annual stress test driving shares higher. Where does this leave their valuation? Looking at price-to-book value in aggregate (1st chart) they are only just trading above a ratio of one, looking cheap compared to a 15-year average ratio of two. However a premium is opening up over European banks which are still trading below book value, and analyst forecasts for return on equity suggest banks are in a very different environment to the last 15-years (2nd chart)
The German ZEW economic sentiment index for March smashed expectations, coming in at 22.3 against the Reuters poll of 10.0. Over the last couple of years the German 10 year Bund yield has tended to track the ZEW, however this has broken down with yields staying below 2% despite the rebound in economic sentiment.
How are hedgies performing this year?
The latest performance data from Nice-based business school EDHEC-Risk Institute shows various hedge funds strategies returned on average 1.46% in January, far behind the S&P 500 index which gained almost 4.5%.