2 FTSE 100 banking stocks I’d buy and hold forever

These two FTSE 100 (INDEXFTSE: UKX) banking stocks have exceptional growth prospects.

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If, like me, you are worried about the impact Brexit might have on your portfolio, investing in emerging markets might be the answer. 

And you don’t have to look far to find high-quality companies that are well positioned to profit from the continued rise of Asia and other emerging markets. 

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The wealthy middle class

According to the World Bank, this year emerging markets will grow 1.4% faster than their developed peers. Wealth is expanding rapidly in these regions, and according to some estimates, by 2030 the wealth of Asia’s middle class will have surged 200% to $24trn, compared to growth of just 12% for developed markets. This is, without a doubt, a tremendous growth opportunity for the likes of Standard Chartered (LSE: STAN) and Prudential (LSE: PRU)

As the wealth of Asia’s middle class grows, the demand for services such as wealth management, life insurance, pension provisions and more bespoke banking solutions will almost certainly rise. Standard and Prudential already have a strong presence in regions across the developing world, and in my opinion, they are likely to be some of the most prominent UK beneficiaries from Asia’s continuing economic success story.

Undervalued 

Prudential is currently in the process of splitting itself in two, dividing the legacy UK business and fast-growing Asian operation. As my Foolish colleague, Roland Head has already pointed out, the split will create two leading wealth management businesses, with the more established UK business likely becoming a dividend champion, while Prudential Asia focuses on growth.

And by splitting up, Prudential Asia is likely to command a much higher valuation. Today the stock is trading at a forward P/E multiple of 11.7, compared to around 17.6 for AIA, a pureplay Asian life insurer. With City analysts expecting the company to report earnings per share growth in double-digits over the next two years, it indeed appears that these shares deserve a higher multiple.

Meanwhile, Standard Chartered has struggled over the past few years, but it now looks as if the group is back on track. Its latest set of results showed a 175% increase in pre-tax profit to $3bn, while the value of loan impairments fell by 50% to $1.2bn last year. 

According to CEO Bill Winters, 2018 is already shaping up to be a better year with “broad-based double-digit” earnings growth seen across the group compared to last year’s numbers. The bank’s underlying earnings are expected to rise by 57% to $0.74 per share in 2018.

Share price double 

Standard might not look like the most appealing investment today, but it is its future potential that excites me. In 2012, when emerging market growth was booming, fuelled by rising commodity prices, the bank earned $1.88 per share. 

As growth returns, it is reasonable to assume that profits could also return to this cyclical peak, which according to my figures, translates into earnings per share of 134p. The banking sector median P/E is 11, so on this basis, shares in Standard could be worth as much as 1,474p, 105% above current levels — which is why I believe the bank would make a fantastic investment to buy and hold forever.

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Rupert Hargreaves owns shares in Prudential. The Motley Fool UK has recommended Standard Chartered. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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