As the new year edges closer, thoughts turn towards my Stocks and Shares ISA allowance. It’s time I started filling it up ahead of the 5 April deadline. I love buying cheap FTSE 100 shares and two big losers jumped out at me.
Both are financial stocks with outsize exposure to Asia whose shares look good value after underperforming for years. There’s plenty to excite me here. And a good deal to scare me away.
Prudential shares have disappointed for years
The Prudential (LSE: PRU) share price has slumped 25.27% over the past 12 months. It’s down 49.18% over five years. Wasn’t it supposed to go gangbusters, thanks to its exposure to emerging Asia and Africa?
Prudential had a clear shot at an army of newly middle class consumers keen to secure their wealth by purchasing pensions and protection. How could it miss, given its multi-channel distribution strategy and strong geographic diversity? The odd thing is that it didn’t. But that hasn’t helped the share price.
While the Chinese economy struggles, sales have held up. On 6 November, the board reported an 11% increase in new business profit to $2.35bn for the first nine months of the year. In Hong Kong, new business profit climbed 8% as margins improved, boosted by sales to Chinese mainland visitors.
Profits at its Chinese mainland joint venture, CITIC Prudential Life, rose 12% as higher-margin products offset a 6% drop in sales. Singapore did well, Malaysia less so. Indonesia struggled. Sales in Thailand, Taiwan, India and Africa were “robust”, but with patchy margins.
Investors chose to prioritise the bad news. This leaves Prudential shares looking cheap, trading at just 9.61 times earnings. Yet I’ve been saying that for years, and still they fall. The 2.44% yield doesn’t compensate. I’ve dodged a bullet and I think I’ll keep dodging it, until I can work out what’s going on.
Can shares in Schroders recover in 2025?
Fund manager Schroders (LSE: SDR) goes down as another dodged bullet. It’s been on my watchlist for yonks, thanks to its high yield and low valuation, but so far the share price has only gone south.
The stock’s down 25.41% over 12 months and 42.11% over five years. Q3 results published on 5 November landed particularly badly, with outflows of £2.3bn.
That was largely driven by market volatility in China, which hit demand for its joint venture funds with local firm Bank of Communications. Unfortunately, there’s worse to come.
The board warned of a tough Q4 with another £10bn of mandate withdrawals from Lloyds and three unnamed clients. The Schroders share price plunged almost 12% on the day, despite strong markets driving assets under management to a record £777.4bn. It hasn’t recovered.
I like buying stocks on bad news and Schroders’ trailing yield of 6.76% also tempts. Only not enough. I can find FTSE 100 financials with even higher yields today, without taking on half as much risk.
