SVG Investment is taking a contrarian stance by promoting European banking equities.

According to Andrew Goodwin, fund manager of the SVG European Focus Fund, the beginning of the recovery well underway, meaning that European banking stocks are once more ripe for investment.

“We have a long term view on investments. I am taking a three year investment horizon. To take advantage of the long term economic recovery investors should be buying now-  invest at the earliest possible opportunity,” Mr Goodwin told WealthBriefing.

Mr Goodwin’s believes that a residual fear of a second crisis, double-dip or even full scale stock market crash, from earlier this year have left banks under-valued and equities under-owned. His argument is that the success of government intervention, expressed as liquidity among the banks, coupled with recent big gains means investors can buy good equity, cheaply before fears give way to widespread bullishness.

“In terms of equity risk, in the equity investment market there has been a spectre of the 1930s crash and as recently as six months ago this was what many were predicting. But as a consequence of unprecedented levels of cooperation on a global scale, which worked, the spectre of a 1930s style crash is removed and the cost of risk has to go down.”

The fund manager points to the Japanese banking crisis where banks returned up to 800 per cent from trough to peak.

"Fears of a collapse drove valuations down to all-time lows and in many cases in Europe, valuations fell to similar levels to those seen in Japan in 2002. At the height of the Japanese banking crisis in late 2002, investing in  Japanese banks was considered 'mad', yet these investments went on to make some spectacular gains,” he said.

Mr Goodwin pointed to the strengthening of other markets, particularly housing, as proof of banking sector health. His view is that although improvements in markets are dependent on liquidity among banks, investors should not worry about their vulnerability to another crisis.

“Time is a great healer for banks. Banks remain very profitable at an operating level and this generates capital which can be used as a buffer for credit losses,” he said, adding that when the market begins to accept that improved management will help avoid another crisis, the long term cost of equity risk would drop, driving capital flows and markets higher.