Standard Chartered (LSE: STAN) shares haven’t done well in 2020. Shares of the bank have fallen substantially as low interest rates, Covid-19, and geopolitical tensions have hurt the business.
Year to date, the shares are down over 40%. Making matters worse, the bank suspended its dividend earlier in the year, a blow for many investors who were seeking stable income.
While the shares haven’t done well, I think there are several reasons I could consider the bank as an investment option going forward.
China’s economy is growing
I’m following Standard Chartered because it has exposure to China’s economic growth.
Although it’s already a huge economy, the IMF says China’s economy is expected to grow to around 8.2% in 2021 and 5.8% in 2022. Analysts expect the country to account for as much as 26.8% of total global growth in 2021 and 27.7% in 2025.
Standard Chartered has substantial exposure to Greater China. Hong Kong accounted for around a quarter of the bank’s income last year. In the same period, mainland China accounted for around 5.6%.
Although mainland China doesn’t account for as much as Hong Kong, the entire region is interconnected. If China’s economy does better than expected, I think Hong Kong’s economy could do likewise.
In addition to deriving indirect exposure to Mainland China growth through Hong Kong, Standard Chartered also has opportunities in the future due to China’s government opening up its financial sector further. The bank also has expansion opportunities in terms of the Greater Bay Area growth and the Belt & Road initiatives.
As the Chinese economy continues to grow, I think Standard Chartered has an opportunity to grow earnings in the country.
Pfizer vaccine: good for Standard Chartered?
The recent Pfizer and Moderna vaccine news is another reason I’m following Standard Chartered.
Recently, Pfizer in conjunction with its partner BioNTech, released bullish data concerning a Covid-19 vaccine candidate from a late-stage trial. According to the data, the vaccine is more than 90% effective. And what we know so far suggests no serious safety issues either. Meanwhile, Moderna’s vaccine yesterday was claimed to be almost 95% effective.
Given that expectations for the efficacy of any vaccine weren’t very high before the Pfizer news, many sectors rallied on the news last week. And they continued to do so after Moderna’s announcement.
I think the news is good news for Standard Chartered. If the world returns to ‘business as usual’ faster than expected, the bank’s earnings could recover faster as well.
I also think effective vaccines would increase the probability that Standard Chartered decides to reinstate its dividend next year.
Many investors previously bought the bank for its dividend. Now, I reckon any hint of the dividend returning could improve sentiment around the stock.
With vaccine news and the bank’s low price-to-book ratio of around 0.4, I’d consider buying the stock and holding for the long term.
