Foreign Banks Stock Outlook - January 2018

Banks in consumption-driven economies, however, may not be significantly challenged by interest income due to a not-too-low interest rate environment which is needed to keep inflation in check.

But capital outflows from these economies with rising interest rates in the United States will limit their flexibility in generating non-interest revenues. Also, intense competition from domestic and foreign players will continue to hinder revenue generation.

Further, under President Trump, foreign banks that have significant operations in the United States might face stricter supervision. This will curb their benefits from the prospering U.S. economy.

Bottom Line

While the impact of the U.S. tax overhaul makes the near-term prospects bleak for foreign banks, synchronized growth across the major foreign economies and consequent increase in business activities  should keep benefiting foreign banks. Though top-line pressure will take time to alleviate in the absence of any significant support from the interest rate environment, effectiveness of defensive measures and growing overall lending should help foreign banks stay afloat.

Foreign Bank Stocks Worth Buying Now

The industry might not be able to tide over the broader challenges anytime soon, but there are plenty of reasons to be optimistic about its long-term prospects. Particularly, given the cheap valuation, it’s perhaps the right time to pick a few stocks from this space. Here are a few stocks that have been witnessing positive estimate revisions and carry a Zacks Rank #2 (Buy):

(You can see the complete list of today’s Zacks #1 Rank stocks here.)

Erste Group Bank AG (EBKDY - Free Report) : This stock has gained 62.4% over the past year. The Zacks Consensus Estimate for the current year has been revised 4.5% upward over the last 60 days.

Westpac Banking Corp. (WBK - Free Report) : The stock has seen 4.2% upward revision in the Zacks Consensus Estimate for the current year, over the last 60 days. It has gained 2.7% over the past year.

Banco Macro (BMA - Free Report) : The stock has gained more than 41.8% over the past year. The Zacks Consensus Estimate for the current year has been revised 16.2% upward over the last 60 days.

United Overseas Bank Ltd. (UOVEY - Free Report) : The stock has gained 45.7% over the past year. It has seen the Zacks Consensus Estimate for the current year revising 4.9% upward over the last 60 days.

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