This year Asian investors are seeking to avoid losers — especially companies out of favour with China — rather than pick winners. The latest spin on that idea has been to invest in the stock of HSBC and Standard Chartered, Asia-focused banks headquartered in London. The shares are up around a tenth.

It is quite a rebound. HSBC and StanChart are perennial underperformers. They were caught in crossfire between Beijing and Washington, exacerbated by pro-democracy protests in Hong Kong and China’s authoritarian backlash. During the Hang Seng index’s 27 per cent gain from its lows last March, HSBC shares fell 3 per cent.

The rally was led instead by fast-growing mainland companies listed in Hong Kong. These included tech giants like Alibaba and Tencent. Beijing’s crackdown has changed the script. Alibaba founder Jack Ma figures as the proverbial protruding nail whose fate is to be hammered flat. His criticism of financial regulators preceded the shelving of a flotation from subsidiary Ant Group and his absence from public events.

Risks facing HSBC and StanChart look modest in comparison. Their domicile in a democratic country with an independent judiciary reduces scope for political interference.

Bulls hope both banks have passed the worst phase for political risk. Beijing’s scrutiny of disruptive rivals may even help them. In HSBC’s key Asian markets, fast-growing fintech companies such as Ant have been chasing the same deposits with their low-cost digital banking services. Stricter controls on capital adequacy could curb competition.

There are other reasons to stick to HSBC and StanChart. Trading volumes and fees from Asia have grown significantly. China, a key market for both banks, has recovered quickly from the pandemic fallout. A return of payouts is on the cards as regulators soften their stance.

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Both banks face hefty long-term challenges. Pressure on net interest income will persist and impairments will rise. But while the Chinese Communist party is cutting local tech giants down to size, foreign-based banks remain the safer bet.

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