The HSBC share price has been punished by a combination of the coronavirus and the China clampdown on Hong Kong. Its stock has fallen by half in the last three years.
However, the HSBC Holdings (LSE: HSBA) share price is in recovery mode today, up around 6%, in a welcome moment of respite for investors. Another Asia-focused bank listed on the FTSE 100, Standard Chartered (LSE: STAN), is up by a similar amount.
Despite this, a long shadow now hangs over their futures. As the Hong Kong clampdown intensifies and Western politicians openly worry about the rising threat from China, HSBC and Standard Chartered are walking a political tightrope. They have to strike a balance between a democratic West and authoritarian China. There are no easy solutions.
New Hong Kong security laws hand sweeping powers to the communist regime in Beijing, and leave bankers operating in the territory open to prosecution. That must concentrate minds. And it looks like both banks have sided with China, backing the new laws to bring stability. Not a good look. Clearly, scarcely-veiled China threats are scarier than Western reputational damage.
I’d think twice about the HSBC share price
Both banks are also following the money. HSBC generates half its profits from China, and most of its growth. Standard Chartered earns around 90% its profits from Asia, Africa and the Middle East.
UK foreign secretary Dominic Raab and US secretary of state Mike Pompeo have both condemned the banks, and life could still get more uncomfortable. The US Congress has unanimously approved legislation that would punish lenders for doing business with Chinese officials involved in implementing the new security law.
Talk about being stuck between a rock and a hard place. If you’re looking to invest in the HSBC or Standard Chartered share prices, you can’t ignore these political threats. They could weigh on growth for years.
This makes domestic Covid-19 threats look like small beer. In fact, the pandemic has brought some positives. Reports suggest UK banks have netted billions in deal fees this year, as crisis-stricken companies look to generate cash to bolster their balance sheets.
Customer impairments are a growing concern though, as the UK plunges into recession, with bad debts on mortgages, credit cards and overdrafts set to rise.
Better FTSE opportunities out there
If you buy HSBC or Standard Chartered, you won’t get any dividends for now. Both have cancelled payouts after pressure from the Bank of England. They won’t be issuing any shareholder buybacks this year either.
It isn’t a good time to be a banker and, frankly, it’s not a great time to be a banking investor either. Standard Chartered mirrors the underperforming HSBC share price. It’s down almost half over three years.
The HSBC share price isn’t even cheap by conventional metrics, trading at just over 15 times earnings. Standard Chartered’s valuation is half that, around 7.5 times earnings. Regardless of price, both carry too much political risk for me.
I’d consider these instead…