Deutsche Bank strategists turn sour on European bank stocks

FILE PHOTO: The headquarters of Germany's Deutsche Bank is seen early evening in Frankfurt

LONDON (Reuters) – Deutsche Bank’s European equity strategists cut their rating on regional banking stocks to “underweight,” saying that the sector is among the most sensitive to swings in euro area growth, which they expect will fade this year, and that valuations are no longer compelling.

Banking stocks have staged a strong rebound since the lows seen in the aftermath of last June’s Brexit referendum with an index of euro zone banks <.SX7E> up more than 70 percent since those troughs.

Deutsche strategists said, in a note to clients, that banking shares no longer have any support from valuations, leaving them susceptible to swings in economic growth.

Bank shares have been under pressure over the past two sessions dragged down by Italian lenders which were sold on worries over possible early elections and the rescue of two ailing regional banks.

The strategists also raised their view on European energy stocks, among the worst performers so far this year, by two notches to “overweight.”

The sector is now the cheapest in Europe, according to Deutsche strategists, who add that recent U.S. dollar weakness should give oil a boost.

Elsewhere, Deutsche cut its rating on European tech stocks to “benchmark,” or neutral, from “overweight.”

(Reporting by Vikram Subhedar, Editing by Danilo Masoni)