Standard deviation

StanChart shows not all emerging markets are equal

Being labelled an emerging-markets bank can be a mixed blessing. Standard Chartered's shares have drifted in recent months as investors fret about growth, particularly in Asia. Yet while the bank is feeling the pinch in Korea and Southeast Asia, other markets are picking up the slack. Shareholders probably need to get used to Standard Chartered delivering a more varied performance.

For investors who have grown used to regular double-digit expansion, StanChart's income growth of four per cent in the first half looks distinctly pedestrian. Operating profit was equally subdued - and that's before counting a $1 billion goodwill writedown on the value of StanChart's South Korean business. Though the charge doesn't affect cashflow or capital, it's a reminder of how the country's financial prospects have dimmed since StanChart expanded into the country through its biggest acquisition in 2005. Government rules to help consumers offload their hefty debts have eaten into earnings: South Korean banks currently earn a return on equity of about four per cent. In 2005, the industry's ROE was about 18 per cent.

The slowdown in Southeast Asia is also weighing on StanChart. Operating profit fell 12 per cent in the first half, as margins were squeezed and the bank's earnings from managing its own balance sheet declined. There were some bright spots. In Hong Kong, the bank shrugged off the slowdown across the border in China to report an operating profit of more than $1 billion, up 19 per cent. Earnings in India and some African countries also showed good growth.

This mixed bag is likely to be an increasing feature of the bank's future results. That may make StanChart's growth less uniformly positive, but it is also realistic for a bank that has enjoyed such a heady expansion. StanChart shares are up 13 per cent from their June low, when investors were at their most gloomy about emerging markets, and trade at a 30 per cent premium to book value. For now, the bank will be eager to remind them that not all developing economies are created equal.