There are many ways for the British investor to hitch a ride on the Asian growth juggernaut. Two of the most popular over the years have been to invest in HSBC or Standard Chartered, or both.
Both have most of their operations in Asia, though their geographic footprints are not identical. HSBC is far bigger and more global. Standard is a pure play on emerging markets with good footholds in the Middle East and Africa.
Both banks are London listed and London headquartered and at least pay lip service to governance standards — which can be reassuring for UK investors.
Yesterday’s first-half results give shareholders a fresh chance to compare and contrast the two.
HSBC’s 29 per cent slide in pre-tax profit was accompanied by warnings about China’s slowing growth and Brexit. A promised $2.5 billion share buyback cheered some investors but HSBC is giving with one hand and taking with the other: it has abandoned its progressive dividend policy. More concerning, Stuart Gulliver, the chief executive, has for the second time downgraded his target for return on tangible equity.
Bill Winters, Standard’s boss, was also having to row back on his promises, conceding it was “likely to take us longer” to deliver on the 8 per cent return on equity target he pledged nine months ago. But he had more cheering news on the bottom line. It made underlying pre-tax profits of $994 million, a recovery from a $990 million loss in the previous six months, though still little more than half the $1.8 billion achieved in the first half of 2015.
The two are at very different stages in turnaround plans. Mr Gulliver has been battling away for years, trying to get to grips with a beast not only billed as too big to fail, but also seen by many as too big to manage. Standard’s fall from grace has been steeper and much more recent.
For shareholders HSBC may look the safer bet. It’s more diversified, and the mouth-watering yield of 8 per cent alone is enough to give it surface attraction. However, in a race between the two banks, Standard looks as if it might have the edge in the long run.
Operationally, it is making more progress. Underlying costs are sharply down, unwanted assets are being ditched fast and the loan-book quality may not be nearly as bad as the worst fears. While HSBC lifted impairment provisions by 64 per cent to $2.4 billion, Standard cut its provision by 34 per cent to $1.1 billion. Non-performing loans were down by $200 million to $12.8 billion.
This is an opaque area. It may just be that HSBC is being commendably conservative. But you’d expect Mr Winters to be writing down every suspect loan he can find while he can still blame his predecessors.
Strategically, Standard has the more compelling story. At HSBC the buzzwords may change. “Courageous integrity” has given way to “Pearl River Delta”, but progress has been slow. By contrast Mr Winters can point to milestones passed. His bank is less of an oil tanker.
Culturally, Standard seems likely to produce fewer nasty surprises. In recent years HSBC has been besmirched by dozens of scandals. And then there’s the governance uncertainty. HSBC’s chairman and chief executive look likely to both be gone within two years. At Standard, Mr Winters is relatively new while José Viñals, the chairman-elect, has only just been named.
My advice Buy Standard Chartered and sell HSBC
Why Management, strategy, culture and scale of challenge
Next
It’s dangerous to assess shares based on personal experience, but a chance trip to Next the other day was noteworthy. Dropping off a child and with no intention of buying anything, this stunned columnist — not exactly a frequent fashion buyer — came away with six pairs of trousers, so impressed was he with the stock availability.
The neat racks were groaning with garments of the desired leg and waist measurement, their hangers all accurately labelled. M&S hasn’t managed this in 30 years. In tough conditions, Next continues to outclass many of its high street rivals.
Second-quarter sales figures improved on the first quarter in both the shops and online, according to the trading statement yesterday.
Lord Wolfson of Aspley Guise, the notoriously bearish chief executive, has fractionally upped his guidance for full-year profit, now likely to come in between £775 million and £845 million.
Expected surplus cash of £350 million shortens the odds on more buybacks and special dividends. Under its self-imposed rules, Next will keep buying up to a ceiling of £68 a share.
The slide in the pound, if sustained, will inevitably push up selling prices next year, but that shouldn’t necessarily hit volumes.
After a 34 per cent fall in the share price from their December high, the shares at £53.40 trade on 12 times expected profits and yield 3.1 per cent. That’s relatively inexpensive. The shares are worth buying — like the trousers (though the pockets could be a bit more capacious).
My advice Buy
Why Shares inexpensive and underpinned by buyback plan
And finally . . .
Ferrexpo, the iron ore producer, is on the mend after a torrid couple of years. Civil war in its Ukraine heartland, the sliding iron ore price and a bank that went bust holding $174 million of its cash hit it badly. But the closure of the Samarco mine after the tragedy there has pushed up the iron ore price. The company is making money — $92 million in the six months to June, according to the latest figures. Net debt is down. There is talk of dividends at some point. The shares were marked 4.3 per cent higher to 54¼p.
