Today I am looking at why worsening activity in key markets could be set to shake Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) still further.
The worst is yet to come?
Standard Chartered has been a sore disappointment during the course of the past year, with fears over a potential rights issue, boardroom shake-ups, and the effect of tougher regulations and slowing business volumes across the globe dampening investor enthusiasm for the stock.
These factors have caused shares to dive by more than 20% from the same point in 2013, to just above £12 per share. But with analysts warning of intensifying financial cooling in the embattled bank’s two most critical Asian markets, more 
significant pressure could be in store for Standard Chartered.
Indeed, following the company’s latest profit warning in late June, analysts at broker Bernstein commented:
“Cyclical headwinds are yet to arrive in full force in the bank’s two key markets — Hong Kong and Singapore. Not that Korea or India is out of the woods either.“
Standard Chartered advised that it now expects the effect of ongoing weakness in key emerging markets to result in a low-single digit percentage drop in group income — at constant exchange rates — during the first six months of 2014.
Adding in the enduring effect of currency depreciation in its critical markets, the bank now expects income to decline by a mid-single digit percentage. All in all, Standard Chartered now expects total operating profit to nosedive by a fifth from the same period last year.
Considering that the company was forced to issue a fresh profits warning even as its Chinese businesses “continued to grow income well“, the prospect of worsening activity in its Beijing-reliant markets of Hong Kong and Singapore could have catastrophic effect on group revenues this year and beyond.
Indeed, China’s strong performance was the only significant positive takeaway during the first half as problems in Korea, India and Singapore offset revenue growth in the country.
Hong Kong was responsible for just under a third of the group’s total pre-tax profits last year, while Singapore took care of a further 15% of the total. And the rest of the Asia Pacific region took care of another 19% of total pre-tax profit in 2013, leaving the business looking hugely susceptible to the effect of a decelerating Chinese economic during the rest of 2014 and potentially beyond.
