Standard Chartered Weathers The Storm In Asia - Mediobanca [DO NOT EDIT]

Tara Loader Wilkinson

20 November 2011

Last week Standard Chartered’s Asia chief executive Jaspal Bindra briefed analysts about the bank’s long and short term prospects in the region. Here Christoper Wheeler, analyst at Mediobanca, shares his views on the global bank’s progress in various Asian countries - and how it may be affected by the macroeconomic climate. Mediobanca has an outperform rating on Standard Chartered stock.

China

Growth in China is slowing (from over 10 per cent in 2010 to 8.5 per cent in 2012/13) but the economy remains buoyant and this slowdown is reducing the fear of overheating. Weaker external demand and the inevitable slowdown in infrastructure development are being replaced by growing demand within Asia and a focus on improving the environment and investing in healthcare and education. In addition, China will move up the value chain (as an example, iPhones are assembled in China but just $10 of the US sales price of $170 is attributable to China),

Greater China

Business in Greater China is growing fast with Hong Kong continuing to benefit from its unique position in terms of capital markets activity. Taiwan is benefiting from opening up its links with the mainland. The first flight from China to Taipei was in 2009 and there are now 1,200 per month. Hence the annual number of tourists from the mainland has gone up from 80,000 per year to 1.6 million.

Korea

Progress in Korea is slow and was not helped by the summer strike. The business has too high a cost base and an inefficient balance sheet. However, Korea provides benefits not just in terms on the local bank, but also the trade flows, which support the rest of the network and has seen offshore revenues grow by 250 per cent in the last three years.

India

India remains stalled and looks set to remain so until after the Uttar Pradesh state elections in early 2012. Given it provides 80 of the 540 elected government representatives; the result should provide guidance on the outcome of the 2014 national elections. Offshore activity remains robust (doubled in the first half of 2011), but onshore activity has been weak as the country deals with market uncertainty as a result of rising inflation, political instability, falling domestic demand and governance issues.

Outlook

We can see how the bank can meet its financial targets in the short term. The emphasis remains on the diversification of the bank – as the biggest portion of loan book in a single economy is 18 per cent in Hong Kong. Also organic growth, customer focus and collaboration across all business lines.

However, the impact of the weak economies in developed markets, uncertainty in India and changes in China’s export profile may make this more difficult in the medium term.