Standard Chartered (LSE: STAN) (NASDAQ: SCBFF.US) is a bank that I’m considering adding to my portfolio, mainly because of its vast exposure to emerging markets.
Indeed, the bank has focused on increasing its exposure to the developing world, especially in the aftermath of the credit crunch when the developed world has been struggling to stay out of recession, never mind deliver the 7%+ growth rates seen in emerging markets.
Furthermore, Standard Chartered has benefitted to a large extent from this focus on the faster growing regions of the world. Therefore, it seems to be in decent shape (in terms of profitability) versus its developed world focused peers.
Of course, emerging markets have had a tough time during 2013, with economic data emanating from countries such as India being poor. Even China has experienced a rough patch, with many commentators stating that the Chinese growth story is showing obvious signs of problems and that the country will experience a reduced growth rate in future.
However, I believe that the emerging market growth story remains an attractive one for long-term investors like me, so I’m happy that Standard Chartered has a keen focus on such areas.
In addition, the potential for a continuation of a credit boom in the developing world brings with it huge potential for entrenched banks such as Standard Chartered. So, even though the short run may be bumpy, I’m convinced that emerging markets remain the ‘place to be’.
Moreover, Standard Chartered is a high-quality bank and has delivered a very impressive cost to income ratio in recent years. Indeed, in its most recent interim results, its cost to income ratio was 51.4%, down from 55.3% for the six months to the end of 2012. This is very impressive and is among the lowest (the lower the better) of the UK listed banks, with Lloyds being the only one that can currently compete with such a figure.
Furthermore, I believe that Standard Chartered has the potential to reduce its cost to income ratio further, with the bank targeting additional cost savings as well as being optimistic that revenues will pick up. Indeed, after a difficult 2013, it would be of little surprise for growth rates in emerging economies to pick up, which would clearly provide a boost to Standard Chartered’s revenue streams and aid in pushing the cost to income ratio below 50%.