In terms of banking shares, he said: “For a country like Spain where the profits of the banking system are fairly quick to recognise the impact of a change in rates, an increase of 2% on bond yields would be a more than 50% profit upgrade. Given they start very cheaply, we would expect at least this much back in share price terms plus the dividends.”
Or, he said one could consider a more fundamental approach, looking at the valuation of future dividend streams and if they were sustianable.
“This would produce around 200% upside in a world of low growth with inflation near target levels. Conclusion: when our scenario of higher-but-still-low rates and normalised inflation comes to pass, these shares should fly.”
