Investors in HSBC (LSE: HSBA) (NYSE: HSBC.US) and Standard Chartered (LSE: STAN) have endured a rather challenging 2014. That’s because shares in the two banks have fallen by 5% and 30% respectively during the course of the year.
Of course, a major reason has been weakness in the Asian economy, with Chinese economic performance hurting sentiment in the Asia-focused banks. Furthermore, currency probes, allegations of wrongdoing, spiralling costs and profit warnings have hit shares in the two banks very hard.
Despite this, I’m still bullish on their future prospects for these three key reasons.
Valuation
Although uncertainty remains high for HSBC and Standard Chartered, I think that their current share prices more than adequately price in this risk. For example, HSBC trades on a price to earnings (P/E) ratio of just 11.6, while Standard Chartered’s P/E ratio is even lower at 9. Certainly, neither bank is enjoying a particularly prosperous period, but discounts of 17% and 36% respectively (compared to the FTSE 100) seem to be overly generous and show that there is scope for substantial upward reratings to the valuations of both stocks.
Growth Potential
Indeed, although Standard Chartered has announced two profit warnings this year, it is still on track to grow its bottom line by 10% in 2015. That’s above the mid-single digit growth forecast for the FTSE 100 and shows that there is still superb near-term prospects on offer for the bank. Furthermore, with such a low P/E ratio, Standard Chartered trades on a price to earnings growth (PEG) ratio of just 0.9, which indicates growth is on offer at a very reasonable price.
Meanwhile, HSBC is also set to deliver upbeat growth prospects in 2015, with its bottom line due to rise by 7% next year. While this is behind the growth rate of Standard Chartered, it is nevertheless attractive and could be improved further with potential efficiency improvements, as HSBC seeks to counter a rising operating cost base.
Income Potential
As well as being good value and having impressive growth prospects, HSBC and Standard Chartered also offer excellent income potential, too. That’s partly because they both have highly enticing yields of 5.1% (HSBC) and 5.5% (Standard Chartered), but also because their dividend growth prospects are very encouraging.
For example, HSBC’s dividend is expected to rise by 7.4% next year, which could put it on a yield of as much as 5.4% in 2015. Equally, Standard Chartered’s yield could rise to 5.7% next year due to its plans to hike dividends per share by 3.8%.
So, with a potent mix of income, growth and value prospects, Standard Chartered and HSBC could turn out to be excellent investments in future. Certainly, 2014 has been something of an annus horibilis for both banks but, at their current share prices, they could make strong gains moving forward.
