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.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Voices
Oscar Pistorius is led out of court in Pretoria. Pistorius received a five-year prison sentence for culpable homicide by judge Thokozile Masipais for the killing of his girlfriend Reeva Steenkamp
voicesThokozile Masipa simply had no choice but to jail the athlete
Arts and Entertainment
James Blunt's debut album Back to Bedlam shot him to fame in 2004
music

Singer says the track was 'force-fed down people's throats'

News
i100
Life and Style
The Tinder app has around 10 million users worldwide

techThe original free dating app will remain the same, developers say

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

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album