LONDON Once-shunned global banking stocks have surged nearly 40 percent in just eight months, but many investors remain wary of buying into a sector whose future size and shape is uncertain.
Asset managers' allocations to the sector remain well below those seen before the financial crisis - and just half as much among euro zone funds - even if a January fund manager survey saw the first, slight overweight for global banks in six years.
Having been widely spurned because of the scandal-hit sector's exposure to subprime assets, toxic government debt and regulation, bank stocks now account for an average 7.6 percent of global equity funds, data from fund-tracker Thomson Reuters Lipper shows.
That's up nearly a point from crisis lows, largely thanks to the U.S. housing recovery and an easing of the European debt crisis, but is still far short of 11 percent in 2006.
For euro zone equity funds, the gap is even bigger. Banks accounted for 10.2 percent of holdings in 2012, up from a recovery from a seven-year low of 9.5 percent in 2011, but still well shy of the 2006 level of close to 20 percent.
Sceptics say banks are still too hard to analyse, with regulatory and political risks and lack of transparency high on their list of concerns, together with worries over earnings and the risk of writedowns in Europe in particular.
"We haven't had the nerve globally to go for financials," said Kevin Gardiner, head of investment strategy EMEA at Barclays Wealth, which has 176 billion pounds under management.
"We detect from our clients that there is still not the risk appetite that would countenance an overweight or buying more European banks."
A 49 percent rally in European bank stocks .SX7P in the last eight months has not been matched by earnings upgrades and banks are under pressure to show a better outlook when they report earnings over the next five weeks.
On Thursday, Deutsche Bank (DBKGn.DE) posted a 2.6-billion-euro quarterly loss after it took charges aimed at drawing a line under scandals and cleaning up its balance sheet without asking shareholders for cash.
On the same day, Spain's Santander (SAN.MC) said it had now taken the worst pain from the country's real estate crisis after its profit halved.
Highlighting the risks, the chairman of the Basel Committee of global bank regulators said last week that differences in the way banks define their risky assets were blinding investors' ability to make informed choices.
For number of investors, that is a major concern. "The big worry is the huge political and regulatory risk and the opacity of financial statements," said Jan Luthman, who co-manages 383 million pounds at London-based Liontrust asset manager.
Wary investors may be missing out on valuations that are still well below pre-crisis level, even if they have started to rebound with the rally.
U.S. banks' price-to-book ratio is at 1.1 while in the euro zone it stands at just 0.7, both down from 2 in 2007, according to Reuters Datastream calculation of MSCI indices.
After bumper gains of more than 37 percent for the MSCI world bank index since June 1 last year, the index is still 50 percent below its May 2007 peak, although it has rebounded by nearly 140 percent since hitting bottom in 2009.
That means there may be room for bargain-hunting despite the rally, and European banks in particular are a top pick for 2013 for many major asset managers.
But even those who recommend buying banks, and European ones in particular, say investors are stock-picking cautiously, and warn the sector will not get back to pre-crisis returns.
"We won't see return on equities of the past again, especially for investment banks. It's a new world with new benchmarks," said Patrick Legland, global head of research at Societe Generale.
(Additional reporting by Joel Dimmock and Laurence Fletcher; Graphics by Vincent Flasseur; Editing by Catherine Evans)