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HSBC’s share price wobble

HSBC’s [HSBA.L] share price began the year at 595.10p on 2 January but plunged to 303.05p on 30 September.

The first major drop in HSBC’s share price came in February as the coronavirus battered Asia — a key region for the bank — before hitting markets around the globe.

HSBC’s share price sat at 595.40p on 12 February, sliding to 444.60p on 12 March and 397.20p on 3 April. Investor sentiment was also hit by record-low interest rates and the cancellation of HSBC’s dividend, intended to shore up its capital buffers during the crisis.

The bank has been criticised by politicians in the West for supporting China’s national security law in Hong Kong, potentially deterring pro-democracy protesters.

 

 

 

HSBC’s share price recovered slightly to hit 422p in early June, despite a worse than forecast 48% plunge in Q1 profit to $3.2bn. It also set aside £2.4bn in bad loan provisions.

As a result, the bank re-activated a £3.6bn cost-cutting plan, which involves shedding 35,000 jobs, and laid out other measures such as merging its private banking and wealth business and reducing its US retail network. However, the challenges facing HSBC’s share price continue.

 

Media onslaught

In early August, HSBC reported a 65% drop in its first-half profits to $4.32bn against a forecast of $5.67bn. This led to another drop in HSBC’s share price to 324.95p on 6 August.

In September, yet another blow for HSBC’s share price came after Chinese state newspaper The Global Times reported that the bank could be part of the China Commerce Ministry’s so-called unreliable entities list.

HSBC’s inclusion would, it seems, stem from its alleged participation in the US investigation of the supposedly sanctions-busting and fraudulent activities of China’s Huawei Technologies.

$4.32billion

HSBC's first half proifits - a 65% drop

 

Inclusion on the list would mean that HSBC would not be able to buy from, sell to or invest in China, which would obviously put a strain upon its business there.

Yet another hit to HSBC’s share price came after an investigation by BuzzFeed and the International Consortium of Investigative Journalists discovered that HSBC and other banks were continuing to move money around for clients believed to be engaging in criminal activity.

In a group statement, the bank said the information was historical, but HSBC’s share price still sunk to a 25-year low of 283.35p on 25 September.

In a rare moment of light, the shares quickly rocketed by around 9% to 308.5p on 28 September after its largest shareholder, Chinese insurer Ping An, upped its stake to 8% from 7.95%.

A spokesperson at Ping An said it believed that HSBC’s suspension of dividend payments was a short-term issue and “has been actively communicating with the lender about the possibility of restoring dividends in the future”.

Investors also hoped that the move could be a sign that Chinese political pressure on the bank may ease in the months ahead.

 

Market Cap£63.802bn
EPS (TTM)-2.80
Operating Margin (TTM)29.03%
Quarterly Revenue Growth (YoY)-35.9%

HSBC share price vitals, Yahoo Finance, 9 October 2020

 

Going concerns

Credit Suisse has an Underperform rating, and has lowered HSBC’s share price target from 330p to 310p on 29 September. Adrian Cighi of Credit Suisse said he “remains cautious” about the bank, citing lower revenue expectations, economic struggles in the UK and Hong Kong and concerns over the “impact of US/China geopolitical tensions”.

Russ Mould, investment director at AJ Bell, believes money laundering could be another major headache. “HSBC has been facing serious headwinds because of the pandemic,” he said. “Money laundering is another risk to pile on top of the others.”

“HSBC has been facing serious headwinds because of the pandemic. Money laundering is another risk to pile on top of the others” - Russ Mould, investment director at AJ Bell

 

Although the coverage regarding money laundering may not look good, it is unlikely that it will force customers to flee the bank, Karl Loomes wrote in The Motley Fool.

He prefers to look long-term, pointing to HSBC’s resource shift from the US and Europe towards its more profitable Asian businesses.

Although costly in the short-term, and dependent on the Asian political landscape, Loomes believes that it will be “very good for HSBC’s share price in the long run”.

HSBC’s share price may be struggling at present and there may even be tougher months ahead. That said, it is still a major global institution with a strong investment bank and a proactive cost-cutting plan. It has also pivoted to Asia, a region expected to see the biggest economic growth in the decades ahead.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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