With interest rates rising to curb soaring inflation, some FTSE 100 stocks could benefit. One banking pick I currently like for my holdings is Standard Chartered (LSE:STAN). Here’s why I’d add the shares to my portfolio.
Interest rates rising
There is a general consensus among analysts and economists alike that the UK could see three interest rate hikes in 2022. The US could experience four! When interest rates rise, operating income for banks such as Standard Chartered increases. When the base interest rate rises, banks make higher margins. This can lead to better performance and result in more lucrative shareholder returns too.
Standard Chartered offers corporate, retail, and private banking to over 59 countries in the world and is supported by over 85,000 employees.
As I write, Standard Chartered shares are trading for 550p. At this time last year, the shares were trading for 446p, which is a 23% return over a 12-month period. The shares have returned 33% since the end of November.
FTSE 100 stocks have risks
Standard Chartered has fallen foul of reporting in the past. From 2018 to 2019, it misstated liquidity positions, which resulted in a £46m fine by UK regulators. These types of issues can affect the balance sheet, performance, and reputation and, in turn, can affect investor sentiment.
Standard also has a large presence in the Asian market. The current Chinese real estate market crisis could have a negative knock-on effect for it if the situation there were to come to a head. I will keep an eye on this development.
Why I like Standard Chartered
Despite the risks involved, I’d still add Standard Chartered shares to my holdings at current levels. One of the key factors for me is its large presence in the Asian market, from which it derives over 70% of its income. This part of the world is established in parts but in others, is very much a growth market experiencing some huge gains in recent times. Standard is primed to benefit from this growth, in my opinion.
Next, Standard has a good track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, revenue increased between 2017 and 2019. 2020 levels dipped but this was due to the pandemic and stock market crash. I am keen to learn of the 2021 results in the coming months ahead. I’d expect results to be closer to pre-pandemic levels.
At current levels, Standard Chartered shares look cheap with a price-to-earnings ratio of just 13. Furthermore, it pays a dividend that would make me a passive income. It currently sports a dividend yield of 1% which is under the FTSE 100 average of 3%. It is worth noting that dividends can be cancelled, however.
Overall I think Standard Chartered would be a good addition to my holdings. The current interest rate hikes and its access to emerging markets should boost performance and any returns I hope to gain. At current levels the shares look cheap and I could make a passive income from dividend payments too.
