Many FTSE 100 stocks had a year to forget last year, with the overall index down 14.3% in 2020. Due to the pandemic, the leading British index fell the most since the global financial crisis.
While each bank fell sharply last year, I reckon there is potential for both stocks to surge this year. Here’s why.
FTSE 100 stocks: Biden stimulus
The first reason I think FTSE 100 stocks HSBC and Standard Chartered stock could surge in 2021 is due to potential developments in the US.
With a pair of Senate wins in Georgia, the Democrats will control both Congress and the presidency for the first time since Barack Obama’s first term. Given that control of the Senate, the Democrats have a higher likelihood of passing a bigger stimulus plan. If the Democrats are able to pass a sizeable stimulus, US economic growth could be higher than expected.
A strong US economic recovery would also be a boost to many nations that the US does trade with and potentially help their growth (especially in emerging markets) as well. If that happens, I think HSBC and Standard Chartered could benefit given their exposure to developing markets.
More sizeable stimulus could also translate into faster interest rate normalisation down the road. If the market expects faster interest rate normalisation, I reckon HSBC and Standard Chartered’s valuation could strengthen. Banks often make more money in higher interest rate environments.
I think another reason to be bullish on FTSE 100 stocks HSBC and Standard Chartered is the rather fast economic recovery in China.
Because it has largely contained the pandemic, China’s economy has quickly recovered. According to Reuters, the nation’s GDP rose 6.5% year over year in the final quarter of 2020, up from 4.9% in the third quarter. Many analysts expect continued strong growth this year as well. The fast economic recovery in China is good news for HSBC, which gets a lot of profits from Hong Kong. Given how connected Hong Kong is with China, the city benefits from a strong Chinese economy.
The rather fast recovery of China’s economy is also good news for many countries that trade with China. With a stronger Chinese economy, demand for the commodities and goods/services that many countries produce is also stronger.
Stronger demand for commodities is good news for HSBC given its exposure to the sector. Standard Chartered also benefits from stronger growth from many countries that China does trade with.
Would I buy these shares?
Given the positive factors that I’ve noted, I’d be happy to buy either HSBC or Standard Chartered. Both stocks are trading well below their book values and could begin to return capital to shareholders again this year. HSBC’s price-to-book ratio is around 0.58 and Standard Chartered’s is around 0.47.
If investor sentiment is positive enough and management of the two banks are successful in executing their plans, I think both stocks could surge this year as the market anticipates potentially continued growth in emerging markets and more normal interest rates in the future.
Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.