Is a Trump presidency bad news for these two banks?

If Trump’s policies are as bad as everyone is predicting, these two banks could suffer.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Donald Trump’s election as President of the United States shocked the world, but now the dust has settled it’s time to sit down and work out what the billionaire’s ascension to the White House will really mean. 

For investors, this task is a difficult one. Some companies will be affected more than others by Trump’s proposed policies if they go ahead.

Who will feel the most pain? 

China is just one of Trump’s targets. When campaigning, he proclaimed that if elected he would place huge import tariffs on Chinese manufactured goods and labelled the country a currency manipulator.

The ultimate goals of such policies are to help inject life into the US manufacturing sector by withdrawing cheap Chinese goods from the market. And it’s likely that these actions will hurt China more than they do the US.

Indeed, a large chunk of China’s economy is built around the export business, and the US is one of the country’s most significant export markets. A sudden drop in sales to the US could severely impact China’s already fragile economy, and with debt nearing 300% of GDP, China has little room for manoeuvre.

Likely to suffer

Unfortunately, all of the above means that HSBC (LSE: HSBA) and Standard Chartered (LSE: STAN) will likely suffer from Trump’s presidency. These two banks are highly exposed to Asian economies. HSBC, in particular, generated $11bn of its total $16.7bn in adjusted profit for the first nine months of 2016 within Asia. Year-on-year reported profit before tax in Asia fell by $2bn.

Meanwhile, Standard generates essentially all of its income in Asia and other emerging markets. The company has been struggling in recent years as loan impairments have risen thanks to falling commodity prices, which have put producers under strain. This trend shows no sign of abating any time soon. For the first half of the year, the company reported $1.1bn in underlying loan impairments, down substantially from last year’s figure but management has cautioned that “stresses remain” in the loan portfolio and the group’s bankers continue “to be watchful”.

Time for caution 

Standard is right to be cautious about what the future holds for the Asian lending market. According to credit rating agency Fitch, there are approximately $1.1trn to $2.2trn of bad loans in China’s financial system, equivalent to around 20% of the country’s economy at the high end. 

Even if a small percentage of these loans defaulted, it would send shockwaves across Asia. While it’s not possible to know exactly what is on HSBC and Standard’s balance sheet, we can be sure that a sudden rise in Chinese loan impairments would shock these banks to the core.

Analysts at JP Morgan estimate that HSBC could be on the hook for $15.3bn this year alone as loans are written off. At the end of 2015 HSBC had $273bn of direct lending exposure to greater China with around $150bn of loans on property.

So overall, a Trump presidency could be terrible for HSBC and Standard if the Republican succeeds in bringing in his protectionist policies.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »