HSBC (LSE:HSBA) shares have rallied in 2022 to date. With that in mind, is the current HSBC share price tempting enough for me to add the shares to my holdings? Let’s take a closer look at what’s happening.
HSBC share price rally
As I write, shares in HSBC are trading for 505p. In 2022 to date, the shares have increased by 12% from 448p to current levels. Although still some way off the 580p pre-market crash price back in February 2020, I feel the price could edge up back towards this pre-crash level in the months ahead.
The HSBC shares’ mini rally in the first two weeks of 2022 doesn’t really offer me an insight toward the longer term outlook. I want to delve deeper into the HSBC share price and consider whether I should buy the shares or not.
For and against investing
FOR: Shares that are close to or below a price-to-earnings ratio of 10 are generally considered a bargain. At current levels, HSBC shares have a P/E ratio of 11, just over the benchmark and most likely due to the recent rally. HSBC shares look cheap as one of the world’s biggest banks with exposure to many markets throughout the world.
AGAINST: Financial stocks like HSBC are often considered cyclical and closely linked to the world economy. Right now, the world economy looks vulnerable and any recovery post-pandemic is on a knife edge and could go either way. One of my biggest red flags when looking to add shares to my holdings is uncertainty linked to external factors that a firm cannot control.
FOR: HSBC’s most recent trading update, a Q3 update released in October last year, gave me a snapshot at the future outlook, which is favourable. The update would have boosted the HSBC share price. HSBC said revenue expectations are improving and earnings per share levels (EPS) should surpass pre-pandemic levels. Dividend payments should be reinstated with a potential dividend yield of over 4% for the current year of 2022. I am also excited by potential further dividend growth expected in 2023 which is enticing. HSBC had a favourable dividend track record before the market crash and banking-wide dividend payment suspension came into place. I understand forecasts don’t always come to fruition, however.
AGAINST: HSBC’s huge exposure to the Asia-Pacific market is an area of concern for me personally right now. China’s real estate sector is in crisis and HSBC’s exposure to this could derail performance and investment viability too. Many large real estate developers in China are struggling to repay loans. There is a belief that this could lead to economic chaos in one of the world’s largest economies. This would be bad for HSBC and the HSBC share price in my opinion.
My verdict
HSBC shares look cheap at current levels. With the outlook ahead for performance growth and more importantly dividends to return to pre-pandemic levels, I see value in the HSBC share price. For this reason I would be willing to add HSBC shares to my portfolio at current levels.