“May you live in interesting times” went the ancient Chinese saying. Many of Britain’s banks, from RBS and Lloyds to Barclays and Standard Chartered, must feel they have been recipients of this particular curse.
While these four banks have been enduring rather more excitement than they would have liked, from the credit crunch and the accumulated mountains of bad debt to the PPI scandal and money laundering, there has been one bank that no-one seems to have noticed: HSBC (LSE: HSBA).
Navigating through the stormy financial seas
Whether through luck or skill, this bank has safely navigated its way through the stormy financial seas of the last four years. As a result we have a bank that has low levels of bad debt, is largely untainted by scandal (though there have been some PPI payments), and which is still very, very profitable.
By being so safe, it is perhaps not the contrarian buy that the other banks have been. There just have not been the shocks that have created buying opportunities with the other banks.
However, HSBC is particularly strong in emerging markets. Now, many fund managers and canny investors (me included) think that emerging markets, which have been so badly hit in the past 12 months, will get the benefit of the continued, adrenaline-like flood of QE funds through the veins of global markets.
A play on recovering emerging markets and financials
I think emerging markets are the contrarian buy of the moment. Countries such as Russia and China have stock markets that are substantially cheaper than the US and UK markets, and that are not reflecting future growth in their economies.
So this means that you should be looking to companies with strength in emerging markets.
I have already tipped Standard Chartered as a contrarian double-play: as emerging markets and financials recover, this company will benefit. Although HSBC has not been as scandal-hit as Standard Chartered, I also see it as a play on emerging market and financials recovery.
HSBC is currently on a very reasonable forward P/E ratio of 11. As a blend of value and growth, I would say that the company would be a worthwhile addition to your portfolio.