To understand Bank stocks, watch property prices

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To understand Bank stocks, watch property prices
In this article we look at how global property price trends influence financial sector stocks, and perhaps more interestingly – what the outlook is.
The chart comes from a broader discussion on global property price trends in the latest edition of the Weekly Macro Themes report.
The chart below shows a monthly view of global GDP weighted property price growth (year over year) vs the Thomson Reuters global bank stock index. There is a clear link, and some important reasons why they generally move in unison.

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There is a fairly intuitive or logical economic rationale for this kind of relationship and the rule of thumb is that property price gains are good for banks (improves asset quality and is consistent with credit growth), and that falling property prices are bad (headwind to credit growth and presents risks on the credit quality front).
So last year when we saw the big rebound in bank stocks, it was actually more about the upturn in global property prices. The other thing I've discussed previously is that rising global property prices is supportive for global growth, and given the impact on growth and inflation - tends to put upward pressure on bond yields... which banks also tend to benefit from.
At present property prices are still rising at a global level, so this presents tailwinds to growth, inflation, bond yields, and bank stocks.
So while it pays to keep track of yield curves, and bond yields, and equity beta more broadly, to get the outlook for banking stocks, pay attention also to the trends in property prices.
For more on the analysis, click through to request a copy of the latest edition of the Weekly Macro Themes report in which this chart appeared.

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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