Ian Forrest, Investment Research Analyst at The Share Centre argues that Standard Chartered’s share price is likely to see continued turbulence over the short term, but for those willing to back the new management a long term hold might be the correct play.
But, he added: “For those interested in the banking sector, our preferred stock is HSBC. The group also has significant operations in emerging markets but yesterday reported results ahead of expectations. Moreover, the company has already set about tackling the challenges it faces in the region.”
That is not to say that HSBC had a stellar set of numbers. Indeed, as Investec banks analyst, Ian Gordon, who has a buy recommendation on the stock said of HSBC: “Revenue weakness was concentrated in RB&WM and GB&M, but strong cost and impairment performances delivered a resilient result which, in a challenging Q3 for UK banks, offers modest encouragement.”
Given the modest numbers to date in a quarter that has been characterised by missed expectations and restructurings, it would seem that the banking sector globally is not yet out of the woods. But, there are signs of encouragement to be had.
John Baker, manager of the JPM UK Dynamic Fund currently has an underweight position to the financials sector broadly, but that is, he explained because he has no exposure to either HSBC or Standard Chartered.
But, that does not mean he is avoiding the sector entirely. He has a 2.5% stake in Lloyds and owns challenger banks One Savings and Aldermore, which he says are much more focused on the UK consumer, and thus provide a better option.
“In the current environment, you need to distinguish carefully where the value opportunities are in the sector,” he added.
Mark Wharrier, co-manager of the BlackRock UK Income Fund is also positive on UK banks currently, because he says, not only are they cheap, but in the case of Lloyds, dividends are rising rapidly. And, should the interest rate environment change, they could start making money from their deposit base, which is currently not being factored in by analysts.
The Q3 numbers so far haven’t left investors with conclusive proof that the banking sector is on the up, but they have underlined the importance of matching strategy to the environment, as Standard Chartered’s numbers on Tuesday highlighted.
