If you're going to be using local storage, why store user credentials or anything derived from them at all?
What I've been looking into doing is:
Upon successful login, generate a completely random string unrelated to user credentials and store that in the database, along with an expiry date. I would then pass that string to my js to be stored in local storage.
From then on, so long as that local storage credential matches the database one and the timeout has not expired, I automatically consider them logged in.
This way, there is no risk concerning the exposure of the user's credentials from local storage. However, with this temporary unique string essentially functioning as a sessionID, you will still to need to be aware of and take precautions against the risks associated with session hijacking.
In any case, my understanding is that local storage is as secure as the server behind your site is. By that I mean local storage is only accessible via scripts coming in through your own domain, so you're safe so long as the only front code running is your own.