HSBC (LSE: HSBA) shares have been bombing along this year, despite growing fears of a stock market crash. It’s been a similar story across the FTSE 100. While the US S&P 500 is 21.51% down year-to-date, the UK lead index has dipped just 4.7%. HSBC has done a lot better than that.
The Asia-focused banks started 2022 trading at 445p, but now stand at 538p, an increase of more than 20%. Measured over a year, they are up 26%, although some could argue they are only playing catch-up after a tricky spell. They still trade a fifth lower than five years ago.
HSBC shares shrug off China fears
Investors have clearly shrugged off concerns that HSBC now comes with major geopolitical risk, due to its operations in China. As the Chinese authorities crack down on dissent in Hong Kong and menace Taiwan, the bank finds itself stuck between a rock and a hard place. It wants to stay sweet with Beijing, without upsetting the US.
It’s a tough balancing act, but one HSBC has managed to pull off so far. However, as we have seen in the Ukraine, things can come to a head very quickly, and cause huge damage.
Another worry is that Chinese growth is slowing, as the country remains wary about lifting Covid lockdowns, while the West is now open.
Interest rates are now rising at a faster pace than anybody could have imagined a year ago, and this is a double-edged sword for the big banks. It allows them to increase their net interest margins, the difference between what they pay savers and charge borrowers. Yet higher borrowing costs could also lead to a surge in loan impairments from cash-strapped business and personal customers.
I’d check out rival FTSE 100 banks first
HSBC shares have outperformed rival FTSE 100 banks in 2022. Barclays is down 14.44% year-to-date, while Lloyds Banking Group has fallen 12.82%. Yet I’m not sure this outperformance is going to last.
HSBC’s Q1 profits fell 28%, hit by the war in Ukraine, the Chinese slowdown, and a warning on its share buyback outlook. I’m surprised the share price didn’t take a bigger hit, but investors chose to focus on the good news instead. Pre-tax profits of $4.2 billion beat the $3.7bn markets had expected. Chinese insurer Ping An’s proposal to break-up the bank may have also driven continued investor interest.
Given the wider political risks, and Covid concerns, I am wary of HSBC. Something else is holding me back too. Recent share price success has left it trading at 10.66 times earnings.
That makes it look relatively expensive compared to Barclays (4.28x earnings) and Lloyds (5.79x). These two FTSE 100 banks also offer slightly more generous yields. I would happily hold HSBC shares in my portfolio, but I won’t rush to buy them today. Personally, I’m checking out Barclays and Lloyds first.