Today I’m looking at three developing-region dependent stocks poised for fresh pressures.
Stuck in a hole
Needless to say, mining giant Anglo American’s (LSE: AAL) fortunes are tied very closely to the economic health of China.
The Asian powerhouse is by far the world’s largest iron ore consumer, and ships in more than five times that of Japan, the second-largest purchaser. And worryingly for Anglo American, other struggling economies like Russia, Turkey and Brazil are also major consumers of the steelmaking ingredient.
But fears over future iron ore sales aren’t Anglo American’s only concern — indeed, Chinese coal demand slipped 3.7% last year as Beijing’s lawmakers are striving to reduce carbon emissions. Iron ore and coal account for around half of Anglo American’s underlying earnings.
And poor demand indicators across Anglo American’s other markets suggest that earnings aren’t expected to bump higher any time soon.
Indeed, the City expects the bottom line to sink a further 34% in 2016, the fifth successive slide if realised. Given that minerals demand from key emerging markets could be set to worsen further, I reckon a consequent P/E rating of 21.3 times represents very poor value for money.
Sales slump
Dragging revenues growth in Asia has long been a millstone around the neck of Standard Chartered (LSE: STAN).
The banking giant saw first-quarter income slumped by 24% during January-March, to $3.3bn, and the odds of a resounding bounceback don’t appear favourable at present.
Indeed, Standard Chartered noted that “trading conditions in the first quarter of 2016 remained similar to the final quarter of 2015, including depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment and concerns around interest rate and other policy actions.”
The company is undergoing massive restructuring to resurrect its performance in these key regions and reduce costs. But Standard Chartered has a long and probably hazardous road ahead to return to its former glories.
The City may expect the bank to swing back into the black in 2016 with earnings of 22 US cents per share. But intensifying economic cooling in Asia — allied with a gargantuan P/E rating of 42.6 times — make Standard Chartered an unattractive stock pick, in my opinion.
Brazilian bothers
While banking rival Santander (LSE: BNC) may not be as reliant on emerging regions as Standard Chartered — indeed, the UK represents the Spanish firm’s single largest market — I reckon worsening economic conditions in Brazil still make the bank a risk too far at present.
The Latin American heavyweight is responsible for around a third of Santander’s profits, but economic growth there is getting bashed up by a toxic mixture of rampant inflation, weak commodity prices, and more recently the impact of a growing political malaise.
Brazil’s economy dipped 3.8% in 2015, and a further heavy contraction is predicted for this year and potentially beyond, undermining a key growth lever for Santander.
The bank is predicted to endure a 4% earnings slip in 2016, resulting in a P/E rating of 9.5 times. While Santander’s reading is low on paper, I reckon investors can find much more secure banking picks elsewhere at these prices.
