HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) has been suffering from the “China Effect” of late, knocking its share price down more than 5% over the past 12 months. And that’s after a recovery — it was down 12% in June.
The problem is, while HSBC had stayed largely clear of the property-led banking crisis in the West, along with Standard Chartered it is heavily exposed to China and the rest of the Asian region.
Asian business
HSBC, in fact, gained 35% of its profit from its home market of Hong Kong in 2013, with the same again from the rest of the region — a mere 8% came from Europe with just 5% from North America.
And when Chinese lending started to boom and the country’s property market was overheating, fears of a similar crunch to the West started to be felt, and that would do HSBC no good at all. But I reckon the fears were overdone, and that has given us possibly the best reason to consider buying right now.
While investors were panicking and selling HSBC shares, the Chinese government was going ahead with its aim of keeping economic growth to around 7% per year, while shifting the economy away from big government projects and more towards growth led by private enterprise. And so far that seems to be working, with growth staying pretty close to targets.
And there’s good news in the form of a slowing property market too — in August, prices fell for the fourth month in a row, and there’s a longer period of stability being forecast.
Crisis averted?
A credit crisis of Western proportions is looking less and less likely too, as the government is pouring cash into state-owned banks to head off any liquidity problems and to keep stimulus going — and it’s a good bit easier for the Chinese government to tell banks what to do than it is for their European and American counterparts.
Looking to HSBC shares themselves, they’re on a forward P/E for the year to December 2014 of 11.5 based on forecasts for a 6% rise in earnings per share (EPS) and a share price of 631p. With analysts also predicting a dividend yield of 4.8%, that’s an obvious undervaluation on simple fundamentals, and there’s clearly some significant Chinese fear still keeping the price down.
Strong forecasts
Forecasts for 2015 paint an even better picture, with a further EPS rise of 7% dropping that P/E to just 10.9, and there’s a 5.2% dividend penciled in. And those forecasts are trending upwards, with the City putting out a pretty strong Buy vibe.
The bank itself sounded upbeat at interim time in August, with chief executive Stuart Gulliver telling us that its “…continuing ability to generate capital supports both growth and our progressive dividend policy“.