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In focus: In these uncertain times, the investment case for banks remains valid

Templeton Global Equity Group (TGEG) maintains its investment thesis on the banking sector amid elevated macroeconomic uncertainties and tariff risks. While banks are generally considered vulnerable to economic headwinds, some still offer attractive valuations and risk/reward profiles, underpinned by factors such as healthy credit fundamentals, favorable shareholder returns and policy-driven growth tailwinds.

Our investment focus encompasses select banks in the United States, where valuations have priced in recession risks but credit quality remains robust, and in Europe, where economic recovery and fiscal policy reforms support the outlook. In Asia, we like Japanese banks, which should benefit from the country’s ongoing economic and interest rate normalization.

Investment outlook

We reiterate our view that there is limited clarity on US tariff policies and their resulting economic impact. While global equities have largely recovered from US President Donald Trump’s “Liberation Day” tariff shock, volatility cannot be ruled out as investors continue to digest the newsflow surrounding tariffs, economic signals and US-China tensions. The elevated macroeconomic uncertainties affirm our commitment to maintaining balanced and diversified portfolios comprised of resilient companies that we believe can weather potential headwinds. Diligence in risk/reward adjustments is also key, as we aim to limit or reduce portfolio exposures to tariff and recession risks. We see opportunities to identify mispriced stocks for portfolio upgrades across the United States and Asia, while maintaining our conviction on the European market and its economic tailwinds. As always, our investment decisions will be closely guided by Templeton’s hallmark expertise in valuation assessment and bottom-up stock selection.

In North America, despite concerns over the economy, tariffs and expanding tech restrictions in China, US stocks had their best May since 1990. This followed the latest twist in the US tariff situation, in the form of a US federal court ruling on May 28 that struck down Trump’s “Liberation Day” duties. The House of Representatives’ passage of a comprehensive tax bill also lifted US investor sentiment.

In Asia, the Trump administration has immediately appealed the court ruling against tariffs, but initial market reactions in the Asia-Pacific (APAC) region were buoyant. The removal or reduction of tariff risks will be a major boon for APAC equities. In this scenario, countries and sectors deemed highly vulnerable to US tariffs—such as electronics and automotive companies in Japan, certain Chinese consumer brands, as well as technology companies across Taiwan and South Korea—stand to benefit from improved sentiment.

In Europe, despite the uncertainty surrounding Trump’s tariff plans, European equities have rallied so far in 2025, with the STOXX Europe 600 Index1 up 8.7% as of May 30. Ongoing volatility is keeping investors focused on short-term challenges and US policy implications. Meanwhile, stubbornly high interest rates and falling energy prices remained significant in recent months. Most notably, the US presidential election has reversed policy tailwinds as the US administration has taken an aggressive approach to international trade, having knock-on effects worldwide.

Market review: May 2025

Global equities collectively rose in May 2025, recovering from April’s lows amid easing trade tensions and improving consumer sentiment. As measured by MSCI indexes in US-dollar terms, developed market equities outpaced emerging market equities. In terms of investment style, global growth stocks significantly outperformed global value stocks.

The US-China temporary trade deal, progress in US trade talks with the European Union, and the delay in US President Donald Trump’s “reciprocal” tariffs soothed investor anxiety about a worldwide recession. Nonetheless, investors expressed concerns about the rating downgrade of US sovereign credit, rising government debt, the potential impact of tariffs, persistent inflation, and higher government bond yields.

Endnotes

  1. Source: FactSet. As of May 30, 2025. The STOXX® Europe 600 is a broad measure of the European equity market. With a fixed number of 600 components, the index provides extensive and diversified coverage across 17 countries and 11 industries within Europe’s developed economies, representing nearly 90% of the underlying investable market. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator of future results.

 

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