Investment View: One slightly sick trading statement does not make StanChart a 'sell'

Should you be standing with Standard Chartered after last week's less than stellar trading update? The market tells its own story. The shares have been on the skids since it was issued. In fact they've been trending down for a while.

Standard Chartered nearly hit £18 in the middle of March, about the time I said keep buying. In hindsight that wasn't the cleverest recommendation I have made, but there were good reasons for it: a relatively restrained valuation and its positioning in lots of rapidly growing markets.

It now looks as if those who sold made the correct call after the bank admitted that recent trading had been less than stunning in its first quarter.

This is a bank from which you don't expect to see bumps in the road. Of course, what we don't have is any numbers to see what has been going on. Standard Chartered is unusual in not putting out any numbers at all with its quarterly updates.

So investors are left to interpret comments from the management, which said operating profits would be "slightly down" when compared to the first quarter of 2012 and that "momentum slowed" after a strong January.

When you don't put any numbers out for people to judge, they'll think the worst. Other banks have learnt this lesson. Sadly, StanChart has not.

All the same, one thing to take to the bank is that it still expects to meet forecasts for full-year pre-tax profits. That ought to provide some comfort: management would look very, very stupid saying that if the difficult trading in places such as South Korea and Singapore persists through the rest of the year.

Analysts have noted growing competition from other foreign banks, but if StanChart is as confident as it sounds, and its comments on the future outlook were more optimistic, then the shares could look quite cheap by the end of the year. The bank is, after all, signalling a rapid return to "trend levels", which means income growth of 10 per cent. Not too shabby.

This is something quite a few people in the analyst and broking communities have picked up on. They see recent share price falls as a buying opportunity. So do I.

Bailing on one of the world's best-run banks, which managed to turn in increases in profits right through the financial crisis (it's produced a record every year for the last 10), would seem on the face of one slightly sick trading statement to be an over-reaction.

I personally took note of the application for licences in Angola and Mozambique, which emerged on Friday. That wouldn't seem to be earth-shattering news. But these are economies which are growing very rapidly. In fact, sub-Saharan Africa as a whole could easily become the next "hot" economic region within a decade or two. It's true that its history doesn't inspire much confidence, but combine a resource boom with an emerging middle class and, crucially, improving governance at the political level, albeit in places which desperately need that, and it could surprise us all.

StanChart is no Barclays, already an established giant on the continent, but it has proved time and again that it is good at emerging markets. So watch this space. On 10 times earnings, yielding 3.6 per cent, the bank is cheaper than, say, HSBC, 11.5 times implying a 4.6 per cent yield.

HSBC is due to update on strategy later this week, and we can expect more cost cuts and more sales of non-core and subscale businesses. Capital is being deployed in areas of growth, such as so called "emerging markets", and UK mortgages.

But as Ian Gordon, an analyst at Investec notes, it's generating so much capital it is struggling to find a use for it. If only all banks were like that.

If you've a decent slug of cash, HSBC is where you'd want to hold it on deposit. Standard Chartered is a risk, given that there are people out there shorting it right now amid worries about loan qualities. All the same, Standard Chartered is where you'd want to invest in terms of shares. HSBC is a solid hold, but StanChart is a strong buy.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee