The share price of banking and financial services company HSBC Holdings (LSE: HSBA) is sliding again. It doesn’t seem able to get get above 700p and stay there. For long-term investors, the situation must be frustrating.
Back in 2005, I used to believe that the firm’s operations around the world made it a decent play on emerging markets. Its trading in Asia, the Middle East, North Africa and Latin America seemed like an ideal way to ride the prosperity that could develop in those regions over the years. The risk was always balanced, I thought then, allied by the company’s strong presence in the developed economies of Europe and North America.
A drag on investor returns
After holding the stock for a couple of years, I realised it was going nowhere and sold out. The problem as I see it with HSBC Holdings is that banking operations are highly cyclical. That leads to the shares being buffeted around by the ups and downs of the macro-economy and by changing investor sentiment. I don’t believe big banks such as HSBC will ever shoot the lights out with investor returns because progress on earnings always seems to lead to the stock market tempering share-price gains by reducing the valuation.
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HSBC’s fat dividend is no consolation either. I could collect it for years only to see all my gains wiped out in capital losses when the share price plunges into the next cyclical down-leg. If that happens, the firm’s profits and the dividend could be toast. With an out-and-out cyclical outfit such as HSBC, I think that whole down-leg scenario is an accident just waiting to happen. So I’d forget all about HSBC now and go for a firm in the wider financial sector, such as Ashmore Group (LSE: ASHM).
Today’s full-year results from the specialist emerging markets asset manager revealed that net revenue increased just over 7% compared to last year. Net cash from operations moved just over 29% higher and diluted earnings per share eased by around 10%. The directors held the total dividend for the year at last year’s level.
A positive outlook
The company saw “broad-based” growth in assets under management (AuM), up 26% year-on-year to $73.9bn, and said in the report that its clients have enjoyed decent returns because of Ashmore’s “consistent active investment approach.” Some 73% of AuM outperformed their benchmarks over one year, 94% over three years and 89% over five years. If the company can keep delivering for its clients like this, I reckon the firm’s future looks bright.
Chief executive Mark Coombs explained in the report that asset prices were “more volatile” in the final quarter of the trading year. But he puts that down to the “nervousness about a small number of emerging countries with particular issues such as Turkey.” He thinks the market extended those concerns “across the broad and highly diverse Emerging Markets universe of more than 70 countries.”
However, in that situation, he sees opportunity for investors to take advantage of the market “mispricing.”
The outlook remains positive and I think Ashmore’s dividend, running around 4.7%, is attractive. I’d rather take my chances with this firm rather than with HSBC Holdings.
