While Standard Chartered has never been considered a top-tier bank, it’s still a significant lender on the global scene. Shares in the bank took another tumble this week after its bottom line was hit by restructuring charges and rising bad loans. In total, Standard Chartered made its first annual net loss since 1989 with a deficit of $2.2 billion, versus a profit of $2.7 billion the previous year. After making it through the Financial Crisis relatively unscathed, the bank has finally been undone by its massive exposure to commodities and emerging markets more generally.
The company’s stock is now down -23% YTD, -54% Y/Y and -75% from its 2013 high. At £450 a share Standard Chartered is trading at just 32% of book value. It’s hard to short a company at such distressed levels, but what if you were given the option to sell these same shares today at £1,000? Obviously you’d take that all day, right? That’s essentially what’s being offered in emerging markets right now, via EEM currently $31.50 a share. The chart below shows Standard Chartered against the MSCI EM index, not EEM, but that’s only because EEM launched in 2003 and wouldn’t show strong correlation dating back to 1990. If the correlation holds this time, EEM will be trading at $15; possibly soon. A lot of investors are now aware of the risks facing emerging markets. However, few appreciate that EEM seems destined to go well below its 2008 low, and what the implications of that are. The chart of EEM versus the CRB Commodity index tells a very similar tale. The earnings announcement from Standard Chartered could be the flare that draws everyone’s attention to this possibility, but it might not. Even though the vast majority of its exposure comes from Asia, Standard Chartered is […]
