There were plenty of big winnerson the FTSE 100 last year, with oil and commodity stocks leading the charge. There have also been some surprisingrecovery plays in other sectors, including these two banking stocks.
Big trouble in China
Global banking giant HSBC Holdings (LSE: HSBA) supposedlyenjoyed one majoradvantage over its UK-listed rivals, its exposure to fast-growing Asia and in particular China. This suddenly turned into a millstone as the region slowed sharply, and the wheelsstarted to come off the China growth story.
This time last year it was slashing tens of thousands of staff, and freezingpay and hiring, as part ofplans to cut as much as $5bn from its cost base by the end of 2017. However, as I wrotelast February, thiswas a great opportunity, especially with the stock trading at just over nine times earnings, and yielding almost 7%. Since then, plenty more investors have come round to thisway of thinking.
I was always slightly bemused by the short-termism that led so many investors to shunHSBC, given that it hasfew of the structural deep-seated problems afflicting the likes of, say,Royal Bank Of Scotland. Even its massive dividend seemed to be reasonably safe, althoughtodays 6.3% yield is only covered 1.3 times.
HSBC did well last year, but not so well that it ateup all of its growth prospects for 2017. It currently trades at 13.1 times earnings and earnings per share (EPS) are forecast to rise 7% this calendar year, after three years of consecutive drops. Capital strength is also in its favour. Now letsjust hope that China survives 2017 in good shape.
Asia-focused rival Standard Chartered (LSE: STAN) was hit even harder by the China slowdown, although slack management was also to blame, which left the bank facingmassive loan impairments andplungingrevenues after its over-leveraged and over-ambitious investment programme.
New-ish boss Bill Winters has a massive turnaround job on his hands, but with the stock up more than 17% over the last 12 months, markets are clearly happyto give him the benefit of the doubt. Global diversification is by and large a good thing, but it also means the benefits of Standard Chartereds risingincome from China and HongKong have beenundermined by weaker performances in the Africa & Middle East and Europe & Americas regions.
Current loan impairments arehigh by historic standards at $596m but thats an improvement on a year ago,when they topped$1.2bn. Standard Chartered is headed in the right direction, but has a long roadahead of it. Revenues and profits are forecast to pick up in 2017, undoing some of the damage ofrecent years.
However,managementhas warned that conditions remain challenging, the Bank of England has alerted investors to the bankscapital inadequacies, and plenty of analysts have warned that President Donald Trumpcould prove bad news for Asia, if his stimulus blitz leads to higher interest rates and a stronger dollar, or if he triggers a trade war. Standard Chartered is a risky play although it should still prove rewarding overa five-year timeframe. Maybe waitfor a buying opportunity if a market sell-offtrims its current pricey forecast valuation of 18.4 times earnings.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.