The key question for the financial sector is whether 2021 is the year when the banking sector, which accounts for c50% of the sector, finally fully recovers. We saw positive moves at the tail end of 2020, but the macro benefits of COVID-19 pressures easing as vaccinations start, restrictions on dividends and buybacks being removed and even releases of the high loan loss provisions taken in 2020 will all provide strong tailwinds in 2021.

What would really underpin banking stocks is whether the relentless pressure on net interest margins starts to ease as economic recovery supported by significant fiscal stimulus results in a reassessment of the inflation outlook and interest rate trends. Also, after a decade where US financials have dominated performance, we expect the baton to be passed to other regions, specifically emerging Asian markets as their more robust performance during the pandemic results in faster economic recovery and rapid improvements in bank balance sheets.

Structural pressures from fintech remain, although the pandemic has accelerated both the benefits, through greater digitisation, and risks for incumbents

Structural pressures from fintech remain, although the pandemic has accelerated both the benefits, through greater digitisation, and risks for incumbents and we suspect after many years of banks being in the firing line of new regulations it may now be the turn of technology-driven models.