It’s been a good year so far for bank shares. The likes of Barclays PLC (LON:BARC) (LSE:BARC.L), Standard Chartered PLC (LON:STAN) (LSE:STAN.L), HSBC Holdings plc (LON:HSBA) (LSE:HSBA.L) and Lloyds Banking Group PLC (LON:LLOY) (LSE:LLOY.L) are all up by at least 4%.
In my view, much of this is due to improving investor sentiment caused by Donald Trump winning the USA election. Barclays, Standard Chartered, Lloyds and HSBC could benefit in the eyes of many investors because he apparently favours more relaxed regulations. This could allow the banking sector to enjoy more freedom, more competitive pricing and less regulatory action than has been the case in the last decade or so.
I’m optimistic about the prospects for HSBC (up 4% in 2017) and Standard Chartered (up 21% in 2017) for that reason, but also because of their exposure to Asia. I think it holds significant growth potential for banks in the long run. China is steadily moving towards a consumer economy, where the prevalence of financial products is more likely to increase.
The two banks are also improving their structure. In HSBC’s case, it is reducing costs and generating efficiencies. In Standard Chartered’s case, it has been doing that for a little while under a refocused management. Both banks could therefore make additional gains in my opinion over the long run as their investment strategies kick-in.
Similarly, Barclays (shares up 4% in 2017) and Lloyds (shares up 6% in 2017) also have investment appeal in my view. To my mind, neither bank has yet reached its full potential in terms of profitability. Barclays is favouring retaining capital over paying it out as a dividend, and it could slim down its asset base, too. Lloyds has already been through a process of job cuts and asset disposals, and is now in a strong position relative to other banks.
Sure, I’m worried about the effect of Brexit on the sector. But I think the momentum Barclays, Lloyds, HSBC and Standard Chartered have shown in 2017 could continue, with some volatility also likely in the year ahead.