Today I am looking at why, despite fears of slowing activity in developing regions, the firm’s heavy exposure to towards Asia should drive shares in Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) higher over the long term.
Emerging markets still a great bet
Standard Chartered came under the spotlight this week after it announced it was dropping its long-running target to punch double-digit turnover growth per annum. The company cited the effect of tougher financial regulations and slowing growth rates in emerging markets as the rationale behind the decision, and Standard Chartered is now looking to achieve “high single digit” growth each year.
Shares have subsequently ducked, erasing the perky uptick seen after the bank’s bubbly interims late October, as fears over lower economic expansion in Asia have dented confidence in the stock. But before investors start heading for the doors, it should be remembered that the company still expects growth to surge in its key markets, a phenomenon that I believe should still propel earnings higher.
The bank’s investor day this week indicated that the bank expects Asian growth of 6.7% in 2012 to drop to 6.5% this year and next, before dipping to 6.3% through to 2018. And continental powerhouse is predicted to see growth slow from 7.7% last year, to 7.6% in 2013 and 7.4% in 2014 before trundling to 7% through to 2018.
Still, I believe that these numbers still provide plenty of earnings upside for Standard Chartered — particularly when compared with underwhelming growth rates in its stagnating traditional markets — and the bank expects growth to continue surging in these regions well into the long term.
Indeed, the firm says predicts that “70 per cent of global growth between now and 2030 is likely to come from emerging economies, taking their share to more than three-fifths of world GDP by 2030.”
In the meantime, Standard Chartered expects growth in its other key regions to re-gather its momentum following difficulties this year. Although growth in Middle East and North Africa is expected to drop to 3.8% this year from 4.5% in 2012, this is expected to rise again to 4% next year and by 4.3% through to 2018. And for the rest of Africa, growth of 5.3% last year is expected to fall to 4.9% in 2013 before surging 5.4% until 2018.
With growth also expected to resume in advanced economies — a fall to 1% in 2013 from 1.4% last year is expected to be followed by a 2% expansion in 2014 and by 2.4% through to 2018 — I believe that the company is a great pick to punch bubbly earnings growth well into the future.