Eoin Treacy's view At Fullermoney we pay close attention to banking sectors. Bull markets are fuelled by abundant liquidity. Banks are liquidity providers and should do well as investors take advantage of comparatively easy credit conditions to increase leverage. When banks fail to participate in bull markets it raises questions about the sustainability of the move and probably reflects central bank tightening or issues with their balance sheets. The problems in the US and European bank sectors are well known and have been discussed at length in Fullermoney. I thought it might be instructive to review global banking sectors in order to ascertain how much commonality exists and which markets are demonstrating relative performance.

The Bloomberg World Banks Index is heavily weighted by Chinese and American banks. It more than doubled from its 2009 low but remained rangebound well below its 2007 peak between late 2009 and mid August when it broke downwards. It extended the decline this week and while somewhat oversold in the short-term a sustained move above 1000 would be required to begin to question the consistency of the medium-term downtrend.

The S&P 500 Banks and Diversified Financials indices have experienced less abrupt declines of late but share a similar pattern to the Bloomberg World Banks Index. The Philadelphia Regional Banks Index had been ranging with a very mild upward bias until early August, when it broke its progression of higher reaction lows. It posted a new closing low yesterday and a sustained move above 40 would be required to begin to question current scope for additional downside.

In Europe, the FTSE 350 Banks Index has a similar pattern to the S&P500 Banks Index above. The Dow Jones Euro STOXX Banks Index is testing the 2009 low near 85 and while short-term oversold, a break in the progression of lower rally highs, with a sustained move above 105, would be required to begin to question the consistency of the decline. The Swiss Banks Index has a similar pattern as do the French and German indices.

The S&P/ASX 200 Financials Index shares a similar pattern to the above indices with a breakdown from a more than yearlong range in August. However Australian banks differ in an important respect. This index yields 7.52%. The S&P/ASX 200 Banks Accumulation Index which reinvests the dividends is therefore a more accurate representation of the sector's performance. It retested the 2007 peak early last year and has been largely rangebound since. It broke downwards last week and sustained move above 47,000 would be required to question current scope for additional downside.

The S&P/TSX Financials Index yields more than 4.28% and has not yet broken downwards, but it does have a similar pattern. The NZX Finance & Other Services Index also yields 4%. It encountered resistance at the upper side of a relatively lengthy range but has so far held up somewhat better than the above indices.

In Asia, the Topix Banks Index remains in a downtrend. It has encountered resistance in the region of the 200-day MA on successive occasions since late 2008 and is now retesting the 100 level. A clear upward dynamic would check the current downward bias but a sustained move above 114 would be required to signal a return to medium-term demand dominance.

In China, the FTSE China A600 Banks Index retains a downward bias with a progression of lower rally highs since mid 2009. It is pressuring the August low and a sustained move above 8800 would be required to check current scope for continued lower to lateral ranging.

The Hang Seng Financial Index, the Korea Financial Industries Index, the Taiwan Bank/Insurance Index and the FTSE/Strait Times Financials Index have all broken downwards from relatively lengthy ranges in moves similar to that posted by the S&P/ASX 200 Banks Accumulation Index above.

The Bombay Bank Index hit a peak late last year, pulled back to range in the region of the 200-day MA and broke below it in August. A sustained move above 12000 will be required to signal a return to medium-term demand dominance.

The Thai Banking Index outperformed spectacularly until late last year when it lost momentum. It posted a large weekly key reversal in August and has fallen to test the lower side of the yearlong range. Considering the commonality of the above indices a clear upward dynamic will be required to demonstrate demand is returning to dominance and to offset current scope for additional downside.

The Jakarta Finance Index was one of only a couple of financial indices to have remained in a relatively consistent uptrend until recently. It posted weekly key reversal in early August and fell below the 200-day MA this week in a major loss of uptrend consistency. Potential for an additional decline has increased and a sustained move above 500 would be required to question that hypothesis.

A clear trend of underperformance among banking sectors is evident from the above charts. Even Asian sectors which had been relative holdouts have succumbed to the recent selling pressure. The reasons for this weakness differ depending on jurisdiction but reflect a wider tightening of credit conditions and slowing economic growth. Although just about all of the indices reviewed above exhibit a short-term downward bias their relative performance is worthy of mention. Despite the problems in various financial centres globally, a number of banks primarily in Asia and Canada regained their respective highs relatively early following the 2008 crash. Indonesian and Thai banks, Canadian and some Singapore banks have been among some of best performing globally. The current concerns are not focused on these countries and they may be among some of the early leaders when a recovery scenario develops.