HSBC, AIB Group: Why banking stocks are good bets with rising interest rate

Highlights

• The ongoing Russia-Ukraine crisis has further added to the already rising inflation and pushed prices of oil and gas, precious metals, and commodities.
• In the current economic situation growth stocks are not performing well against value stocks and investors are looking for more safe-haven stocks such as banks.
  

The ongoing Russia-Ukraine crisis has further added to the already rising inflation and pushed prices of oil and gas, precious metals, and commodities to their multi-year record high.

Since the global financial crisis in 2008, most bank stocks have suffered due to slumps in the overall market, and lower interest rates crushed their net interest to low single-digits. The banks were forced to comply with sweeping regulatory reforms aimed at shoring up the banking system.

Further, the pandemic restricted banks to effectively provide shareholders with dividends, as UK regulators ordered the banks to suspend dividends to shield them from impairment losses.

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According to recent data by the Office for National Statistics (ONS), UK inflation has increased to 5.5% in January from 5.4% in December, pushing the Bank of England to raise interest rates and to begin to taper their purchase of financial assets, which is a positive sign for the banks.

In the current scenario, growth stocks might not perform well against value stocks. The equation goes like this: higher inflation leads to higher interest and discount rates, which further affect the value of growth stocks. Therefore, investors look for safer stocks, such as banks.

However, one must look at history to find a comparable macro set-up like the current economic and financial situation when growth stocks were highly overvalued with rising inflation and record-high oil and gas prices in the early 1970s.

Let us look at the 5 FTSE-listed banking stocks that you may consider. 

Standard Chartered Plc (LON: STAN)

The market cap of UK’s multinational banking and financial services company, Standard Chartered Plc stood at £16,081.24 million as of 3 March 2022. The company has delivered a return of 4.71% to its shareholders over the last one year as of 3 March 2022 and its year with its year-to-date return standing at 16.06%. Standard Chartered Plc’s shares were trading at GBX 522.20, down by 0.69%, at 8:55 AM (GMT) on 3 March 2022.

HSBC Holdings Plc (LON: HSBA)

The market cap of one of the largest banking and financial services company in the world, HSBC Holdings Plc, stood at £102,817.09 million as of 3 March 2022. The company has delivered a return of 16.96% to its shareholders over the last one year as of 3 March 2022, and its year-to-date return standing at 12.85%. HSBC Holdings Plc’s shares were trading at GBX 506.10, down by 0.28%, at 8:55 AM (GMT) on 3 March 2022.

Bank of Ireland Group Plc (LON: BIRG)

The market cap of one of the traditional Big Four Irish banks, Bank of Ireland Group Plc stood at £5,026.81 million as of 3 March 2022. The company has delivered a return of 62.46% to its shareholders over the last one year as of 3 March 2022 and its year-to-date return standing at 14.46%. Bank of Ireland Plc’s shares were trading at EUR 506.10, up by 3.15%, at 9:05 AM (GMT) on 3 March 2022.

Also Read: Why Evraz and Polymetal will lose their FTSE 100 status?

AIB Group Plc (LON: AIBG)

The market cap of the provider of banking and financial product and service, AIB Group Plc stood at £5,128.82 million as of 3 March 2022. The company has delivered a return of 6.71% to its shareholders over the last one year as of 3 March 2022. However, its performance was down this year with its year-to-date return standing at 4.53%. Bank of Ireland Plc’s shares were trading at GBX 189.30, up by 0.19%, at 9:05 AM (GMT) on 3 March 2022.

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Also Read: Investec, John Menzies, Indivior: Growth stocks to watch out for in March

Are banking stocks good bets with rising interest rates?

Investec Plc (LON: INVR)

The market cap of an Anglo-South African international banking and Wealth management company, Investec Plc stood at £2,732.82 million as of 3 March 2022. The company has delivered a return of 85.64% to its shareholders over the last one year as of 3 March 2022. However, its performance was down this year with its year-to-date return standing at -2.09%. Bank of Ireland Plc’s shares were trading at GBX 394.70, up by 0.54%, at 9:05 AM (GMT) on 3 March 2022.

Note: The above content constitutes a very preliminary observation or view based on industry trends and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.