(Bloomberg) -- JPMorgan Chase & Co analysts said they were wrong to be cautious on European bank stocks, one of the region’s top performing sectors this year.   

Favorable economic and interest rate trends have helped drive a 16% price-to-earnings improvement across the sector, a team led by Kian Abouhossein wrote in a note Tuesday. That counters their previous stance that negative consensus earnings per share revisions would weigh on lenders, the analysts said. 

“We have been cautious on European banks which has not been the right decision,” Abouhossein wrote, adding that they had removed that view to focus on bottom-up stock selection. 

The Stoxx 600 Banks Index is 11% up since the start of the year, the second-largest gain among European industries. The region’s banks have benefited from higher interest rates, which feed through to bigger lending margins. 

Still, the analysts noted that they are “not outright positive” on the sector as it is in the final leg of a re-rating.

The analysts “take some consolation” from the fact that their top picks, which include Intesa Sanpaolo SpA, Banco Bilbao Vizcaya Argentaria SA, UBS Group AG and Deutsche Bank AG, have largely performed well. Their geographical selections have also been correct, they said, as they chose to avoid regions such as France and the Nordics which have underperformed versus their overweight call on Italian and UK domestic banks. 

--With assistance from Joe Easton.

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