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Banks have been among the best performing shares in the UK this year as higher interest rates give the sector a boost, despite concerns about the domestic economic recovery.
Shares in NatWest delivered the highest return this year to mid-December, rising 101 per cent including inflation and dividends, according to investment site Hargreaves Lansdown. Barclays was the fifth best performing stock, up 81 percent.
UK lenders have been hit by high interest rates, which were cut in August after a year of around 5.25 percent. This high rate has allowed them to make attractive interest margins – the difference between what they pay on loans and what they get on deposits.
Analysts say banks have also benefited from an improved economic climate in which fewer people have defaulted on loans – a good thing for lenders. However, the economic outlook is mixed. Although the IMF upgraded its forecast for UK economic growth in October, the latest figures point to a second consecutive monthly contraction in October.
Susannah Streeter, head of finance and markets at Hargreaves Lansdown, said NatWest in particular had “been there” this year, pointing to its third-quarter results, which beat expectations.
“With prices expected to stay high for a long time, that builds on the improvement in performance as it keeps the revenue stream stronger,” Streeter said. He added that Barclays had benefited from lower-than-expected loans, adding that the bank was “keeping costs under control.”
Standard Chartered was among the top ten performers this year, up 54 percent in total return.
Besides banks, “recovery” stocks – those with the potential to bounce back after a downturn – also did well. John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, pointed to aerospace company Rolls-Royce and British airline owner IAG. Shares have risen 94 percent and 84 percent respectively on a full return basis.
“Rolls-Royce could be the poster child for 'recovery' not just this year but this decade,” Moore said. “For some, the business looked like it was in dire straits but the refocusing and modernization of civil aviation and the defense sector has opened up revenue generators.
“The continued recovery and growth in air travel has also helped IAG which, as a result, has been able to increase its yield per passenger and despite prioritizing investment and a strong balance sheet, it has still achieved a higher dividend payout for the first time. from 2019.”
Richard Hunter, head of markets at Interactive Investor, added that the owner of British Airways “is now firmly on the rise”, noting that the surprise announcement of the €350mn share purchase program in November was an additional sign of recovery.
“Yes, shares have remained down 30 percent over the past five years to pre-pandemic levels, but the room for a rebound is solid evidence. of price performance over the past two years, shares have gained 127 percent. ,” he added.
Corporate takeovers have featured prominently this year, helping to boost share prices for Hargreaves Lansdown, which was bought by private equity firms including CVC Partners, and packaging firm DS Smith, which was snapped up by US operator International paper. Shares in Hargreaves Lansdown are up 56 per cent this year while DS Smith is up 85 per cent, putting them both in the top ten.