The fashionable investment tactic of the past month - buying bank stocks while selling energy companies - could already have gone too far, Merrill Lynch, the financial management group, warned clients yesterday.

In mid-July, hedge funds, pension funds and other institutional investors dramatically reversed their enthusiasm for energy stocks and loathing for financials in an abrupt about-turn that sent bank shares soaring and oil and gas companies sinking.

But Merrill said yesterday that the unwinding of the classic bet of the credit crunch may already have been overdone, giving warning that banks across Europe could still be forced to raise between $70 billion (£37 billion) and $120 billion in new equity on top of the $120 billion already raised. Barclays and HBOS looked most vulnerable among UK banks to having to go back to their shareholders for more equity on top of the £4.5 billion and £4 billion, respectively, already raised.

Merrill said that the rush to buy back into banks may already have gone too far after it stress-tested their balance sheets. It also said that fears over the sliding energy price were being overplayed.

The passion for oils and other raw material stocks and the shunning of financials has been the overwhelming investment story of the credit crunch, a sectoral play on a par with the push out of tobacco and other defensive stocks into technology in the ill-fated boom of 1997 to 2000.

Since last summer, tens of billions of dollars have been pulled from financials and sunk into energy companies but in the past four weeks the sliding price of crude and Banco Santander’s opportunistic bid for Alliance & Leices-ter triggered an abrupt rethink. Since mid-July until yesterday, banks have outperformed the market by 10 per cent and energy companies underperformed by 10 per cent. “A lot of people will have been caught out by the brutal nature of that reverse,” David Bowers, a consultant to Merrill, said.

Merrill’s own monthly survey of fund managers showed that the net number saying they were overweight in oil and gas fell from 52 per cent last month to 11 per cent. The return to financials was more modest, with the net number of investors underweight in banks slipping from 57 per cent to 40 per cent.

Bank shares were punished yesterday, with Barclays and HBOS each falling 7 per cent. Royal Bank of Scotland and Lloyds TSB fell 6 per cent.

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