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How could China’s wealth crackdown affect HSBC’s share price?

HSBC share price: The HSBC building in Canary Wharf

As President Xi Jinping cracks down on China’s wealthiest and looks to curb the spending power of the rapidly expanding middle class, HSBC pushes on with its growth in Asia. What impact might future regulations have on the HSBC [HSBA] share price?

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HSBC share price dips amid regulatory crackdown

The HSBC share price has fallen sharply in the past month – the stock is down close to 6% at 372.15p on 13 September, having peaked at a 52-week high of 462.55p on 28 May. While the share price is up 4.7% since the start of the year and 23.2% in the past 12 months. 

HSBC has underperformed in recent years and, to reverse the downtrend, the bank has been undergoing a major restructure. This has involved pulling out of the US mass market retail banking space and sharpening its focus on Asia, where it makes most of its profit. 

In the first half of the 2021 fiscal year, Asia accounted for 64% of HSBC's global pre-tax profit of $10.8bn, according to Finews Asia. However, the region’s pre-tax profit for the second quarter was down 5.9% year-on-year at $6.9bn. 

As Asia’s profits soar, HSBC has been cutting $100bn of risk-weighted assets to free up capital to be invested in boosting its wealth management business across the continent, including buying AXA Singapore for $575m.

The second-quarter results showed that its Asia wealth business is gaining strong traction. Global wealth balances were up 18%, or more than $250bn, year-on-year, which was down to the growth in assets as opposed to deposits. High net worth customers in Asia grew by 7%. HSBC intends to expand its Asia private banking team by 700 employees by 2022, and has plans to double client assets in the region. 

HSBC has hired 600 wealth managers in China alone and plans to add 3,000 new jobs over the next three years. The bank’s CEO Noel Quinn believes the burgeoning wealth of China’s middle classes is “an opportunity too big to miss”, according to an interview he gave to Bloomberg’s Front Row programme on 1 September. 

Regulatory crackdowns a possible overhang

Despite the progress being made in Asia, China’s president could throw a spanner in the works. In August, he declared that the number of billionaires being created every week must be reduced. The government, he added, should “regulate excessively high incomes and encourage high-income groups and enterprises to return more to society”.

If Xi does enforce regulatory clampdowns, this could cause HSBC clients to worry about their assets and even decide to move their money elsewhere, which could have a negative impact on HSBC’s share price. There is also the challenge of ongoing antitrust probes into Chinese technology companies listed in Hong Kong. These factors could be near-term headwinds but Quinn isn’t concerned. 

“Sanctions policy will hit you, and you’ve got to deal with it, but we’ve been dealing with sanctions policy for the past 10 to 15 years to 20 years,” Quinn told Bloomberg. “You have to stay close with your clients and with the regulators to understand their requirements.”

Regulatory concerns aside, analysts at Goldman Sachs believe the steps HSBC is taking to restructure the business should enable it to become “a more focused, simpler and more profitable group”, according to a note to clients in May seen by CNBC. 

Meanwhile, analysts at Credit Suisse expect three or four “bolt-on” acquisitions for its Asia Wealth business to impact the final figure of its share buyback, according to a note to clients seen by ShareCast. 

Goldman Sachs and Credit Suisse have targets for the HSBC share price of 605p and 465p, respectively, according to MarketBeat, which implies an upside of 59.1% and 22.2% from its 13 September close.

 

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