This is timely given the relief rally in the European banking sector.
It’s some back-of-the-envelope calculations from Citigroup on the potential magnitude of underinvestment in Europe’s peripheral banks:
And here are the workings behind those figures.
- Estimate €425bn of passive assets benchmarked to large cap European equity
- Estimate that actively-managed assets are 4x passive = €1,700bn active assets
- Peripheral banks = 3.5% of large cap Europe (based on SXXP wgts)
- Assume average active manager is 50% underweight peripherals relative to benchmark
- Given the above estimates we get €30bn underinvestment in peripheral European banks. Comparing this to the average daily liquidity of the stocks, this works out to approximately 14 days trading volume. Each 10% change in investor positioning equals 3 days trading.
This is obviously a VERY rough estimate but gives an order of magnitude to the size of the potential flows one way or the other.
Indeed it does.
And here’s the chart to monitor those flows:
Plus a reminder on recent Piggy Bank performance, via RBS.
Related link:
Carnage with Consob – FT Alphaville