The HSBC share price is tipped to keep rising despite a weak forecast for this week’s first-quarter update. Although rising inflation and interest rates should help profits, the bank’s earnings are likely to be impacted by Covid-19 lockdowns in China.
Hong Kong-based banking giant HSBC [HSBA.L] is expected to report a 5.2% drop in year-over-year revenues when it reports its first-quarter figures on 26 April, weighed down by the impact from Covid-19 lockdowns in China.
The group is forecast to post revenues of $12.6bn for the quarter ending 31 March and earnings of $0.78 per share, according to CNN Money.
In its fourth-quarter and full year results back in February, the bank warned of a weak performance from its Wealth division in Asia during the March quarter.
The hurt from lockdowns has been partly offset by recent increases in interest rates in countries such as the UK and the US.
The bank also said that it expected to generally see good momentum in its business, with mid-single digit lending growth over the year as a whole as consumer spending resumes after the pandemic hemmed people indoors. The question that still looms is whether the confidence will remain given inflationary headwinds and soaring living costs.
Geopolitical factors impact profits
In the long term, HSBC hopes to benefit from economic expansion in Asia and the region’s increasingly wealthy population. However, developing markets can be volatile and the region is expected to impact the bank’s growth in the first quarter and perhaps further into the year.
Major centres such as China and Hong Kong have been hit by a new wave of Covid-19 infections, a strict lockdown policy to combat the virus, a slowing economy and the hangover from the Evergrande property crisis.
Bank of America says wealth sales were likely constrained by lockdowns in the mainland and Hong Kong. Mortgage trends in Hong Kong are also likely to have been weak, and Chinese trade has been disrupted.
City Index added that HSBC had built reserves of $500m in the fourth quarter to “reflect the increased risk spawning from China’s commercial real estate sector”. It said that analysts believe HSBC will increase its reserves by another $860m in Q1 “as more risk hangs over the global economic outlook”.
That is largely as a result of the Russia-Ukraine conflict. Bank of America estimates $200m worth of Russia-related provisions from the bank.
Q4 profits surge
In the three months ending 31 December, HSBC reported a pre-tax profit of $2.7bn, up 93% on the year-ago quarter.
Revenues came in at $12.1bn, up by 2.5% year-over-year and matching analyst expectations of around $12.09bn.
It was helped by growth in customer lending balances as the global economy emerged from the pandemic and commercial banking.
For the full year 2021, profit after tax was up $8.6bn to $14.7bn, helped by the release of expected credit losses in the pandemic. Revenues dipped 2% to $49.6bn, dragged down by lower interest rates.
At the earnings call, group chief executive Noel Quinn (pictured above) said: “We made good progress against our strategy in 2021, which contributed to a strong financial performance that was supported by the global economic recovery. All of our regions were profitable, and we saw growth in the fourth quarter of 2021 in many of our business lines.”
HSBC stock performance ahead of earnings
At the close on 22 April, the HSBC share price was up 20% year-to-date at 523.3p. In comparison, rivals Barclays [BARC.L] and Lloyds Banking Group [LLOY.L] were down 19.7% and 1.7%, respectively, over the same period.
Credit Suisse analysts believe HSBC is likely to benefit more than its UK rivals given its positive exposure to US interest rate hikes. Investors also have confidence in the continued potential of the Asian market, despite the impact of Covid-19.
According to 23 analysts polled by MarketScreener, HSBC stocks have a consensus ‘outperform’ rating. Bank of America has a ‘buy’ rating and a price target of 645p, representing a 23.3% upside on the 22 April closing price.