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Standard Chartered banks on carbon trading, as pullback in rate hikes, easing currency volatility muddy second-half outlook

  • Second-half business will be challenging because of subdued volatility, says head of Hong Kong and Greater Bay Area financial markets
  • Carbon credit trading ‘is the way forward’, says Standard Chartered’s John Thang

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A Standard Chartered bank branch in Hong Kong. Among the lender’s five biggest markets, Hong Kong was the only one to report a decline in operating income in the first half. Photo: Bloomberg
Georgina Lee
Expectations of a pullback in US interest rate increases and lower currency market volatility are likely to pose challenges for Standard Chartered’s capital markets and trading business in the second half of 2022.
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But the lender’s new carbon credit business will mitigate a likely drop in business activity, amid clients’ growing demand for trade in carbon credits with counterparts in Europe, said John Thang, Standard Chartered’s head of financial markets in Hong Kong and Greater Bay Area.

For the full year, the bank’s Hong Kong financial markets business – credit markets, macro trading, financing and issuance – is expected to grow by “a single digit” from a year earlier, after overall income stayed flat for the six months ending June, Thang said. Globally, the division is the biggest of the bank’s six business lines, accounting for more than a third of its operating income.

“Interest rate and foreign-exchange hedging demand from our clients is likely to slow down in the second half, as rate hike expectations and currency volatility ease,” he said. “The jury is still out [on whether] we will have stagflation or a recession.”

John Thang, Standard Chartered’s head of financial markets in Hong Kong and Greater Bay Area. Photo: Jonathan Wong
John Thang, Standard Chartered’s head of financial markets in Hong Kong and Greater Bay Area. Photo: Jonathan Wong
The bank expects that the US Federal Reserve will raise its target rate until it reaches 3.5 per cent by December, before keeping it unchanged for a while in 2023. The Fed has raised its key rate four times this year, lifting it to a target range of 2.25 per cent to 2.5 per cent in July from near zero earlier this year.
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An easing in the US dollar index, a gauge of the dollar’s value against a basket of foreign currencies, will coincide with the rate hike. The gauge’s gains are likely to fizzle out in the second half, leaving various foreign-exchange rates less choppy, Thang said. The dollar index is up 9.8 per cent year to date.

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