LIVE MARKETS-"Not the market to miss": UBS flags fragile bank rally

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"NOT THE MARKET TO MISS": UBS FLAGS FRAGILE BANK RALLY

UBS sees a 20% total return for European banks over the coming year and a half, driven by a further catch-up in valuations, but warns the near-term setup looks fragile.

Analyst Jason Napier at the Swiss bank says 93% of the sector's rally this year is down to a valuation re-rating, and not triggered by significant earnings upgrades.

This makes the sector vulnerable if risk aversion returns.

"This isn't the market in which missing 2Q earnings is advisable," he writes.

UBS's  base case sees European banks re-rate to 10 from 8.8 over the next 12-18 months, narrowing their PE valuation gap with the wider market to the historical 25% average.

European banks .SX7P are up 31% YTD, by far the best sectoral performers in Europe. Top five gainers are Commerzbank CBKG.DE, SocGen SOGN.PA, ABN ABNd.AS, Santander SAN.MC and TBC TBCG.L.

(Danilo Masoni)

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