Bank ETFs on both sides of the Atlantic have had a tough start to 2024 as the U.S. commercial real estate sector continues to face mounting pressure.
U.S. Treasury Secretary Janet Yellen last week said she was “concerned” about the sector, saying falling valuations were driving up losses for lenders, but banks in the U.S., Japan and Europe are all looking at commercial growth. It warns of concerns about exposure to commercial real estate and widespread spread of infection.
Despite positive economic indicators released from the United States, global commercial real estate has failed to recover following the onset of the coronavirus outbreak, and rising interest rates are impacting the ability of many borrowers to refinance.
European financial ETFs led the decline last week, with Invesco European Banks Sector UCITS ETF (X7PP) and Amundi Euro Stoxx Banks UCITS ETF (BNKE) each down 2.8%.
Meanwhile, the XTrackers MSCI USA Banks UCITS ETF (XUFB) fell 1.8% and the iShares S&P US Banks UCITS ETF (BNKS) fell 1.5%, bringing the latter's year-to-date performance to -4.4%.
This concern has also added to the poor start to the year for real estate ETFs.
Growing pressure on the real estate sector has raised fears of another regional banking crisis in the United States, similar to the collapse of financial giant Silicon Valley Bank (SVB) last March.
Europe's largest ETF tracking the sector, the $742 million XTrackers FTSE EPRA/NAREIT Development European Real Estate UCITS ETF (XDER), is down 10.5% year-to-date, while the Invesco US Real Estate Sector UCITS ETF (XREP) fell 5%. %.
Nevertheless, some believe that if the U.S. Federal Reserve decides to cut interest rates this year, things will become easier for the sector.
“Financial conditions are softer than they were a quarter ago, and there is some comfort in the expectation that the Fed will start cutting interest rates around the middle of this year,” said Claudio Yrigoyen, head of global economics at Bank of America (BofA). It will give you a feeling.”
“However, the sector is likely to remain under stress as office vacancies are expected to continue to rise and prices to fall in the post-pandemic world.”
