Financial sector offers mix of growth opportunities

A mix of positive trends — from interest rates, to deregulation, to growing middle classes around the world — should boost financial-sector equities, says Jennifer Martin, vice president, global equities at T. Rowe Price Group.

Martin said the composition of financials equities that are poised to benefit from prevailing trends is “very diverse and rich with insights.”

Speaking on the Soundbites podcast this week, she said growing middle classes in countries like Vietnam, Indonesia, the Philippines and India have created enormous opportunities for emerging market banks.

“These are economies that are all growing faster than the developed world, and that directly benefits those banks,” she said.

She also likes the financial payments subsector — particularly blockchain companies and financial tech companies like Adyen.

“These are parts of the financial sector that focus on payment processing and technology. And it benefits from the longer-term trend of the digitization of money,” she explained.

Other opportunities include developed world banks (which benefit from deregulation trends), insurance companies (rising interest rates), and alternative managers and capital markets names (rising transaction volumes).

“That’s all just financials,” she said. “That’s where we see opportunity. It’s pretty broad-based, in a lot of geographies.”

Speaking about equity performance this year, she said markets have been heavily influenced by the Trump administration, which got off to an uneven start, marked by extremes.

“When you think about it, post the election, there was a really strong market. It was up and to the right through mid-February. And then you’ve seen, really, April marked with significant volatility,” she said. “So it has been, in some ways, a more challenging stock market performance.”

The early positives of the Trump presidency started with a clear election win in all the key arenas — the House of Representatives, the Senate, the presidency, and the popular vote.

“Markets love certainties, and that was certainly beneficial,” she said, adding that markets were further buoyed by renewed talk of deregulation and a resumption of Trump’s first-term tax policy.

“The reduction of the regulatory burden [was] seen as a real positive for economic growth,” she said. “And the extension of current tax policies — which were initially set to sunset — would be a key positive for equity markets.”

Business leaders were also encouraged by Trump’s apparent concern for market performance.

“I mean, when the 10-year treasury rose above 4.5%, Trump responded,” she said. “That was indicating, at least to us, that he is attentive to market conditions.”

On the flip side, however, Trump’s first 100 days were marred by bold and unpredictable policy statements that led to market instability and volatility.

“The one [policy position] that we’re most focused on was the tariff concerns,” she said. “His stance on tariffs could lead to trade barriers and cause a recession, and this uncertainty skews the market outlook a little bit more towards the downside.”

Nevertheless, Martin remains optimistic about the prospects for equity performance.

“We’re still actually constructive on equities and in uncertain markets,” she said. “A diversified portfolio with high-quality equities across all sectors and regions remains one of the best ways to preserve wealth.”

U.S. exceptionalism — which has been speculated to be coming to an end — could be reframed as simply an overcrowding in U.S. equities due to incredible returns from intellectual technology developments like AI. And in that light, the end of such a concentration of capital would not be a bad thing.

“As a global equity manager, this shift could be seen as a positive development because it encourages a more diversified set of quality assets around the world, rather than just concentrating in a few heavily owned U.S. companies,” she said.

She said Europe is currently replete with opportunities, partly driven by the Trump administration’s growing protectionist strategy, which forces European countries to ramp up their own defense and infrastructure spending.

“It’s notable that the growth rate for government spending in the U.S. is decelerating, while it is increasing in Europe. The chaos of the Trump administration has woken Europe out of their slumber, and the range of outcomes are expanding in Europe, which makes that region more interesting,” she said.

“As active managers, we always find alpha in change, and so taking advantage of market volatility can really be additive to investors,” she said.

“We always encourage investors to focus a little bit more on that intermediate to multi-year term, rather than short-term market fluctuations, and stay fully invested to allow investment decisions to compound over time so that you can have those good outcomes.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.