To a large extent, the situation at Standard Chartered (LSE: STAN) bears comparison to fellow Asian bank HSBC Holdings, which I’ve already taken a look at.
While Standard Chartered largely escaped the ravages of the Western banking crisis, through doing the bulk of its business in Hong Kong and the wider Asian region, that focus has turned around and bitten the bank’s stock since fears of a similar catastrophe in China have arisen.
China focus
Standard Chartered only earns around 10% of its profits in Europe and the Americas, with around 30% in 2013 coming from Hong Kong alone — so it’s no wonder that investors shunned the bank when Chinese lending started to get out of hand and the country’s property market got a bit overheated.
But those fears are surely overblown. In fact, property prices have already cooled, with August bringing the fourth month of falls in a row, and the government is already pumping cash into state-owned banks to maintain liquidity and provide stimulus. One overall effect is that China’s economic growth is sticking close to the government’s target of around 7%.
But when it comes to Standard Chartered, there actually is more.
Korean slump
The bank has been having troubles in its South Korean business, with profitability in the country slumping badly — Korea, in some ways, looks a bit like an Asian version of Southern Europe.
We’ve also been seeing a few quarters of tough-looking figures, and there doesn’t appear to be anything in the way of strategy for turning things around. On top of earnings per share (EPS) falling by more than 15% for the year to December 2013, that’s led some to question the suitability of chief executive Peter Sands for the top job.
But forecasts for the full year are steadying with the City expecting a modest recovery in EPS. And since a month ago, dividend forecasts have actually been beefed up a little, with the consensus expecting 51.5p per share this year for a yield of 4.4%. And a majority Buy rating remains in force.
Cheap shares?
Standard Chartered’s dividend yield is a little lower than HSBC’s, but its shares are on a lower forward P/E of 10.4, dropping to 9.4 for 2015.
With Standard Chartered shares down 22% over the past 12 months, do brightening prospects in China mean they’re worth buying? I think they’re good value now — but you must do your own research before you make your choice!
