I’ve read a lot this year about whether the British government should be supporting viable businesses, especially since many previously booming businesses have only become unviable because they were told to close during the Covid-19 pandemic. Banks weren’t told to close, and an ever-increasing amount of their business is done online or over the telephone these days, so you might wonder why banking stocks were beaten down so badly this year. And whether they’ll bounce back.
Why banking stocks have been beaten down
Although they haven’t been told to close, it’s hard for banks to make money when interest rates are so low, and even harder if interest rates actually turn negative. Then add the prospect of a no-deal Brexit and US election uncertainty into the mix.
But the low interest rates can’t last forever, the pandemic will pass, Brexit will be completed (one way or another), and the US election will remove a lot of international uncertainty.
Why the FTSE banks will bounce back
Ultimately, the banks will bounce back because we’ll always need them, and the only thing that will upset this particular applecart is if the challenger fintechs such as Starling and Monzo succeed in disrupting the banking market. However, I think the familiar FTSE 350 banks will be around for a lot longer than the challengers would like, mainly because they’re upping the ante with their own mobile apps.
The banking bounceback has begun
On 27 October, the HSBC share price shot up somewhat on news that the bank was considering reinstating its dividend after profits had beaten expectations. That’s good news for investors, as may be the news that the bank is looking to cut costs. The share price was already rising from its lowest point, and – until today – this month-long rising tide had lifted all the British banking stock boats including Banco Santander, Barclays, Lloyds, and Natwest.
The dynamics are somewhat different for European and American banks, which is why I’m only betting on British banks. Stick with the stocks you know!
How I’m betting on the banking bounceback
Okay, I’ll admit it. Even as a committed Fool, I operate a spread betting account, which allows me literally to “bet” on the individual banks or the FTSE 350 basket of banking stocks. But I’m no day trader, and my long-term investment approach is no different in this account than it is when investing via my tax-efficient individual savings account (ISA) or my self-invested personal pension (SIPP). Whichever account I work with, I buy and sell exactly the same stocks or other securities at exactly the same times. The only things that are different are the fees I pay and the amount of money I make when I make the right investments.
So far, so good, with most if not all of my banking stock positions currently showing a profit in all my accounts since September. But diversification could be crucial because any one of my individual banking investments might not be a good bet, as my Foolish colleague Roland Head has previously suggested.
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Tony Loton owns shares in Banco Santander, HSBC Holdings, Lloyds Banking Group, and Natwest Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.