JP Morgan downgrades StanChart, saying imperfect play on US rates

Analysts at JP Morgan downgraded their recommendation on StanChart stock, emphasising that its shares were an "imperfect play" on the US interest rate cycle and how the 'bullish' scenario for the shares required a medium-term perspective.

"Relative to US banks, these banks are imperfect plays on US rates" the investment bank said.

The reason for that was that rate hike cycle in the States needed to be perfectly timed to 'thread-the-needle' between its positive impact on the lender´s net interest margin and the negative impact it might have on asset quality in Emerging Markets, analyst Raul Sinha said in a research note sent to clients.

That was also true of HSBC, whose stock was changing hands at 1.2 times´ P/TNAV.

Furthermore, Stanchart shares had already rallied by 80% and HSBC´s by 54% over the past 12 months.

Hence, the risk-reward trade-off looking out over the next year was now less "compelling", Sinha said.

At 0.8 times' price-to-tangible next asset value stock in StanChart was also more geared to delivering improved earnings, as oppossed to the removal of capital concerns, dividends and mergers and acquistions.

Sinha downgraded its recommendation on shares of StanChart from 'overweight' to 'neutral' but stayed at 'neutral' on HSBC.

However, in the case of HSBC JP Morgan raised its target price from 600p to 670p.

"We believe that under CEO Bill Winters, StanChart is pursuing a more sustainable LT recovery strategy, albeit one that will take time to deliver, also less cyclically geared."