HSBC Holdings plc vs Standard Chartered PLC: Which Asia-Focused Bank Should You Buy?


2014 has been a thoroughly disappointing year for investors in HSBC (LSE: HSBA) (NYSE: HSBC.US) and Standard Chartered (LSE: STAN). That’s because shares in the two banks have lagged the FTSE 100 year-to-date despite the wider index being up just 0.5% over the period.

Indeed, while HSBC’s performance has been only slightly worse than that of the FTSE 100, with shares in the UK’s largest listed bank falling by 1% since the turn of the year, Standard Chartered’s performance has been very disappointing. Shares in the bank have fallen by 10% since New Year. However, does this now mean they’re better value than HSBC? Or is HSBC the better buy of the two stocks?


With both banks being heavily focused on Asia, they appear to offer significant long-term growth potential. For instance, the Chinese economy continues to undergo a managed transition from one that is capital expenditure-led to an economy that is consumer expenditure-led. This means that businesses and consumers are likely to require increased amounts of credit moving forward. With HSBC and Standard Chartered both enjoying relatively dominant positions in the Asian economy, they look set to benefit from a significant tailwind moving forward.

Income Potential

Partly as a result of their disappointing share price performance in 2014, HSBC and Standard Chartered both offer stunning income potential. For example, HSBC currently yields a highly enticing 4.8% but, more importantly, dividends are set to grow at a rapid rate. They are expected to be 8.3% higher next year, which means that shares in HSBC could be yielding as much as 5.2% this time next year (assuming a constant share price).

Not to be outdone, Standard Chartered’s current yield is an impressive 4.2%, while dividends per share are forecast to rise by 5.3% in 2015. This means that shares in the bank could be yielding as much as 4.4% next year.

Growth Prospects

Clearly, Standard Chartered’s poor share price performance has largely been due to a fall in profit of 20% in the first half of 2014. However, looking ahead, things could be a lot brighter for the bank. That’s because it is set to increase earnings by 6% this year and by a further 10% next year. With shares in the bank currently trading on a price to earnings (P/E) ratio of just 11.1, this equates to growth at a very reasonable price.

Although HSBC’s earnings growth prospects are slightly lower than those of its peer, with the bottom line expected to grow by 6% this year and 7% next year, the bank still offers good value for money right now. Indeed, shares in HSBC have a P/E ratio of just 12, which is well below the FTSE 100’s P/E of 13.7 and shows there is considerable scope for an upward revision to the ratings of both banks.

Looking Ahead

While both banks appear to be strong buys right now, HSBC could prove to be the more prudent choice of the two. That’s because it has a higher yield and better dividend growth prospects, as well as a more stable performance as a business. Certainly, Standard Chartered looks all set to put a troubled first half of 2014 behind it, but this lack of stability means that a wider margin of safety is needed when being compared to the likes of HSBC. As a result, while the prospects for both banks are strong, HSBC could prove to be the better performer over the long run.

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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.