2 no-brainer stocks I'd buy in banking

When it comes to great plays on emerging markets, I believe Banco Santander(LSE: BNC) is one that share pickers should pay close attention to.

I was pretty cautious on the Spanish bank in days gone by because of the much-publicised political and economic troubles in its Brazilian marketplace, its single largest division from which generates more than a quarter of group profits. The prospect of Brexit-related trouble in its critical UK division had also prompted me to adopt a bearish tone.

However, the steady improvement in trading conditions in Latin America has led me to revise my assessment. Last year Santander saw underlying attributable profit from Brazil exploding 42% from 2016 levels, to EUR2.54bn, a result that helped group attributable profit rise 7% year-on-year to EUR6.62bn.

Brazil's painful march from recession continues to pick up steam thanks to slowing inflation and an uptick in commodity values, and the country's central bank currently expects economic growth to improve to 2.7% this year. This clearly bodes well for Santander, particularly as it is expanding trading activities in South America's economic powerhouse.

While significant, the knockout performance of its Brazilian operations was not the only cause for celebration in 2017. Profits in Mexico and Chile boomed 13% and 14% respectively last year, to EUR710m and EUR586m. Rising economic growth across all of its Latin American units, allied with low banking product penetration right now, is likely to keep demand for Santander's products shooting higher in the years ahead.

Asian giant

HSBC (LSE: HSBA) is another banking share packed with promise thanks to its exceptional exposure to developing markets.

The World's Local Bank continues to rely on its Asian marketplaces to keep profits on an upward bent. Between January and September, group pre-tax profit rose 8% year-on-year, to $17.4bn, thanks to an 11% profits increase in its far-flung territories, to $12.1bn.

Like Santander, HSBC can look forward to the benefits brought about by the population boom and improving personal income levels across their emerging markets. And in the more immediate term, the prospect of monetary policy tightening in these territories, like in the West, should provide a boost to their profitability levels.

Stunning yields

City analysts are certainly expecting strength across their emerging markets operations to underpin robust earnings growth at both HSBC and Santander.

With the latter, earnings growth is expected to grow 10% in 2018 and 12% in 2019. And at HSBC profits are predicted to expand 4% this year and 5% in 2019.

Not only do these projections make the banks stunning value for money -- HSBC and Santander sport forward P/E ratios of 13.5 times and 10.8 times -- but they are expected to support chunky dividend yields.

The Spanish bank is forecast to pay dividends of 22.4 euro cents per share in 2018 and 24.2 cents in 2019, forecasts which yield 4.1% and 4.4% respectively. Its industry rival is predicted to fork out rewards of 53.7 US cents in 2018 and 54.5 cents next year, resulting in even-more delicious yields of 5.3% and 5.4%.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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