Investment: Standard gets Asian jitters

THE TROUBLE with being an emerging markets bank is that when the markets submerge investors get wet. This is precisely the problem facing Standard Chartered, which derives more than half its net revenue from the Asia-Pacific region, and whose shares have underperformed the market by 35 per cent since September.

Given Standard's exposure to Asia, yesterday's interim results weren't bad. At current exchange rates, profits before tax and after provisions were down 4 per cent to pounds 416m in the six months to June. At constant rates, profits were up 8 per cent. But the figures were flattered by the treasury operations, which tend to do well when currencies are volatile. After stripping out treasury, pre-tax trading profits fell from pounds 338m to pounds 211m.

Standard set aside pounds 139m to cover specific debt provisions, and added pounds 50m to its general debt provision. Some analysts grumbled that the bank's provisioning was too optimistic, but its provisioning to date has been pretty much spot-on.

The real issue is that Standard lacks both the diversified portfolio and the balance-sheet strength of HSBC, its London-listed peer. So despite Standard's expertise in the region, and despite long-standing customer relationships, its fortunes are inextricably linked to those of the struggling Asian economies.

The shares closed yesterday at 603p, down 20p in a gloomy London market. Forecasts put the shares on a forward p/e ratio of 10 for the full year 1998. Given the current bout of Asian jitters, the discount to the sector is probably justified.