10 Updates

Playing Emerging Markets Through Western Blue Chips: HSBC

Feb 24 2014, 7:20am CST | by

Investors today face a quandary with emerging markets . Sentiment towards them is bearish, and has been for some years now, with far greater faith in developed economies than developing. But at the...

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21 weeks ago

Playing Emerging Markets Through Western Blue Chips: HSBC

Feb 24 2014, 7:20am CST | by

Investors today face a quandary with emerging markets . Sentiment towards them is bearish, and has been for some years now, with far greater faith in developed economies than developing. But at the same time, there is no denying that emerging markets, with their high populations and strong demographics, will be the engines of global growth in years ahead.

While investors grapple with the question of when it will make sense to re-allocate assets to emerging market shares in expectation of a rebound, there is another way of gaining exposure to developing world growth rates without having to deal with local, falling stock markets. One common approach is to buy a western blue-chip that gets a lot of its profits from the emerging world. US fund managers tend to refer to Coca-Cola as an example of this, while Europeans talk about Nestle and Australians mention BHP Billiton. In all cases, the principle is the same: a Western-domiciled business, with all the familiarity and security that comes with that, but an earnings model built on the emerging world.

In an occasional series, I will be looking at stocks that allow investors to do this, starting today with HSBC, which this morning released its annual result for 2013. If you’re interested in studying this in depth, click this link  and then download the PDF available on the right of the page, ‘presentation to investors and analysts’.

If you look at page five of this analysis, you will see just how clearly the HSBC model is based on the emerging world, and in particular Asia. HSBC is, strictly speaking, a British business; that’s where it is legally headquartered. But anyone who knows the bank well understands that its spiritual home is at 1 Queen’s Road Central, where the extraordinary Norman Foster-designed HSBC building, its coathanger braces suspending curtains of glass above a cavernous atrium, overlooks Statue Square while stoic stone lions stand guard. As the numbers on this page show, Hong Kong accounted for more than a third of underlying profit before tax in 2013, and the combination of Hong Kong, the rest of Asia, MENA (Middle East and North Africa) and Latin America together made up $17.2 billion of the total $21.6 billion total underlying pre-tax profit. We can argue about whether Hong Kong should still be considered an emerging market, but we can say that a shade under 80% of the bank’s profit comes from outside of North America and Europe .

HSBC is amid a transformational strategy under chief executive Stuart Gulliver which has largely involved the sale of a lot of non-core businesses – 63 of them since 2011 – as well as a focus on cost efficiency and a change in the way the whole business is organized. You can see more about this on page 16, but what is perhaps most striking on this page is the fact that, from the 2010 to 2013 financial years, Latin America, Hong Kong, Asia and MENA revenues are up 21%. These might be difficult markets at the moment, but HSBC is demonstrating that they can drive considerable growth. Flip a page further and you see the strategic priorities from now to 2016, and the very first one is to continue to shift assets into higher performing businesses, which it considers to include the Pearl River Delta (that is, the area embracing Hong Kong and the wealthy southern cities of Shenzhen and Guangzhou), Asean (the Association of Southeast Asian Nations), renminbi internationalization (the steady opening of the Chinese currency to international use) and trade, which is increasingly being driven by the emerging world.

Investors tend to like HSBC as a play on the emerging world for several reasons. One, most obviously, it’s from the emerging world, and no matter where the official head office is, HSBC has made its name from more than a century of immersion in Asia, building a deep local presence wherever it goes. True, it has recently shut down some of these businesses, such as a large part of the leading Islamic finance business it used to boast, but the fact is wherever you see HSBC – whether it’s in downtown Colombo in Sri Lanka or in its building on the creek in Dubai which is about as old as the city itself – you see a bank that is very much a part of the location, which brings with it very strong banking relationships. Another is that it has a reputation of avoiding silly risk, which is why it came through the global financial crisis in much better shape than most of its peers (the same can be said of Standard Chartered). Third, it has a long track record of paying steady dividends and being wise with its capital.

Now, one can argue that in an environment like this it is possible to be too exposed to emerging markets, and perhaps it is.But, in conclusion, here is Stuart Gulliver’s comment on the case for the emerging world: “We remain of the view that the GDP of mainland China will grow by 7.4 per cent this year, the UK by 2.6 per cent, the US by 2.5 per cent and Western Europe by 1.2 per cent. Although there has been a sharp sell-off in some emerging markets, we see this as a reflection of specific circumstances rather than a generalised threat. Overall, we remain optimistic about the long-term prospects of emerging markets and the opportunities for HSBC.”

Source: Forbes Business

 
Update
10

6 weeks ago

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Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

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KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

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8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rej ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

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PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

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PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Schem ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Dama ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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