Live Markets: Time to hedge exposure to euro zone banks

Banco Comercial Portugues SA

05/08/2025 11:03

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        TIME TO HEDGE EXPOSURE TO EURO ZONE BANKS

The euro zone banks index .SX7E has risen almost 50% year-to-date, compared to a 7% gain for the STOXX 600 .STOXX but Bank of America believes that the sector might be vulnerable to an economic slowdown and recommends hedging exposure.

Two banks - Commerzbank and Societe Generale - have seen their share price more than double this year, while UniCredit, Deutsche Bank, Sabadell, ABN Amro, Santander, Bankinter, CaixaBank, BCP and BBVA have all risen by at least 50%.

The outperformance in 2025 can be attributed to the sector's high cyclicality, elevated market beta, M&A and buybacks, BofA says.

"While further upside in the sector can't be ruled out, both positioning and price action are starting to look stretched - particularly in the context of risks weighing on Europe," BofA says.

The euro zone economy remains subdued, eking out just 0.1% growth in Q2. The impact of U.S. import tariffs is yet to fully materialise, while details of the bloc's trade deal with the U.S. remain light.

"Given its large downside beta to the broader market, we believe the sector could be vulnerable to deterioration in regional growth expectations, and hence, we advise maintaining cheap hedges for investors who are long," BofA adds.

(Samuel Indyk)

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