2 reasons why I should avoid cheap Barclays shares in November!

Barclays (LSE:BARC) shares are up an impressive 82% in the past year. The rise occurred as markets predicted a series of interest rate cuts that could increase lending activity.

However, despite these gains FTSE100 The bank still looks very cheap on paper. It is traded on a forward basis price-earnings (P/E) ratio 7.3 times.

It is also a price/earnings growth (PEG) multiple of 0.4. Anything below 1 means the stock is undervalued.

But I’m not tempted to buy the banking giant for my portfolio. There are a number of threats that I think could cause Barclays’ share price to fall again. Here are just two.

Auto finance scandal?

Trouble is looming for UK banks as the industry braces for another costly legal battle. This week I saw this:financial bosses, government officials and regulators“Meeting to discuss fears of heavy financial penalties in the auto finance industry. Finance Times.

The Financial Conduct Authority (FCA) is investigating whether secret commissions from banks to retailers have resulted in unfair deals for consumers. This has led to a sharp increase in customer complaints to the Financial Ombudsman.

The pessimism has increased in recent days after the Court of Appeal ruled that such commissions must be approved by customers.

Lloyds It has set aside £450 million to cover incidental costs but said it would review that amount following last week’s court ruling.

Black Horse Bank is the group most exposed to potential scandal. But other banks, such as Barclays, also face huge fines. Estimates vary, but Numis reckons motor finance providers could face a whopping £10bn bill.

Probably not as big as the infamous Personal Protection Insurance (PPI) saga. But the division could still deal a big blow to Barclays’ profits.

Poor growth outlook

Banks are some of the most economically sensitive companies. Periods of low growth lead to reduced lending activity, higher loan defaults, and generally weaker margins due to lower interest rates.

Unfortunately, this is the backdrop against which Barclays will likely have to navigate in the coming years. This week, the Office for Budget Responsibility (OBR) forecast that after peaking at 2 per cent in 2025, GDP growth will fall thereafter, reaching 1.5 per cent in 2027 and 2028. Forecasts beyond next year have actually been cut by the OBR.

Added possibility of recession in the US – which is JP Morgan odds recently split at ‘1 in 3’ — Barclays could struggle for the rest of the decade, perhaps longer.

Like emerging market banks HSBC And Standard Rented They face their own dangers. More specifically, a prolonged slowdown in the Chinese economy and new shocks, especially for the country’s real estate sector, pose a major threat.

But the opportunities for superior long-term returns (via share price increases and dividend growth) make them more attractive to me than Barclays. Asian and African markets are forecast to grow strongly due to themes such as rapid population growth, increasing consumer wealth and ongoing urbanization.

Like Barclays, these businesses trade at attractive P/E ratios. These are 7.5x and 7.2x for Standard Chartered and HSBC respectively.