Battle Of The Emerging-Market Banks: Standard Chartered plc vs HSBC Holdings plc

Emerging markets have had a torrid time in recent years, falling while stock markets in developed markets have risen. I have been a long-time advocate of investing in emerging markets. But sometimes I feel I have just been cheerleading, with little sign of emerging markets turning.

However, in recent weeks and months I have noticed a thawing of sentiment towards emerging markets. When I invested in Fidelity China Special Situations at the height of the eurozone crisis, the net asset value stood at 85p. Today it stands at 115p. I sense that emerging markets are gradually rebounding.

But if you want to invest in emerging markets via the FTSE 100, which is the better bet: Standard Chartered (LSE: STAN) or HSBC (LSE: HSBA) (NYSE: HSBC.US)?

Standard CharteredStandard Chartered

For a decade Standard Chartered Bank grew steadily, as it expanded across emerging markets in Africa, Latin America and Asia. But, after so many years of expansion, growth has stalled recently. Earnings tumbled in 2013, amid a money-laundering scandal.

However, I think this fall in profitability is temporary, and that this bank will come through its recent travails. Demand for banking services in emerging markets is set to increase, and Standard Chartered has strong market positions in a range of high growth emerging markets.

Consensus predicts a P/E ratio of 9.8 in 2014, falling to 8.9 in 2015, with a dividend yield of 4.2. If Standard Chartered can meet these — admittedly demanding — consensus targets, then the bank looks a bargain at current prices.


 HSBC is one of the most stable banks in the world. It has emerged virtually unscathed from the Financial Crisis (quite an achievement in itself), and it is consistently growing earnings year upon year.

HSBC is one of the world’s largest banks — yet, despite this scale, its strength in emerging markets means it is still growing.

Consensus estimates a P/E ratio of 10.7 in 2014, falling to 9.4 in 2015, with a dividend yield of 5.2. This means that, like Standard Chartered, HSBC looks cheap.

Foolish bottom line

 The share prices of both Standard Chartered and HSBC have fallen recently, weighed down by emerging market gloom and a pullback in financials, meaning that this could be the ideal time to bag a bargain.

But which of these two should you buy? Well, I would say both companies are strong buys at the moment. But its strength and stability, plus a high and rising dividend yield means that, when it comes down to it, I would plump for HSBC.

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Prabhat owns shares in none of the companies mentioned in this article. The Motley Fool owns shares in Standard Chartered.