The HSBC share makes gains on massive profit increase. But would I buy it?

HSBC (LSE: HSBA) is up over 4% in today’s trading, making it the biggest FTSE 100 gainer as I write today. There is one, and only one reason for this. 

And that is its earnings update for the first quarter of 2021. 

A positive earnings report

The HSBC share started rising after the bank reported a 82% increase in profit after tax from the same quarter last year to $4.6bn. 

There are other positives in the report too. One, all its regions are profitable. Considering that HSBC, unlike some of the other FTSE 100 banks, like Lloyds Bank, has significant international operations and the present times have been difficult across the world, this is an encouraging development. 

Two, its lending business grew by $2bn on a reported basis, which reflects return of appetite among borrowers. This is in line with economic forecasts that indicate the return of robust growth in this year and the next. 

Three, HSBC is also positive about the future now. It mentions an improved economic outlook as the reason for this. Notably, it has said that it is “giving us increasing confidence in our revenue growth plans”. This is particularly positive, because for the first quarter of 2021, the bank has reported a 5% decline in revenues. Relatedly, it also expects lending to speed up through 2021.  

Geopolitics that just cannot be ignored

As positive as this update is, I am concerned about the effect of geopolitical stresses on HSBC. Because of the geographies it operates in, the bank was caught up in these before the corona crisis showed up.

Geopolitics receded last year as dealing with the pandemic became priority and the economic slump drove HSBC’s numbers in the past year. But, these stresses are still very much prevalent.  

Among its risks, the bank mentions developments in Hong Kong, the US-China trade war (though in not as many words) and even the relationship between the UK and the EU moving forward. I think here it is helpful to recall that while a last minute Brexit deal was struck, there is no deal yet for the financial services industry. There is hope, however.

But for now, Hong Kong is HSBC’s biggest geopolitical concern. It says that “The financial impact…of geopolitical risks in Asia is heightened due to the strategic importance of the region, and Hong Kong in particular, in terms of profitability and prospects for growth”. To provide some perspective, 65% of its profits for the latest quarter were from Asia. 

Would I buy the HSBC share?

I think these risks are too big to ignore, and will take centre stage again. But balancing factors have also come into play, like the return of growth. I have been cautious of the HSBC share in the past, but I am once again beginning to get cautiously optimistic on the stock.