HSBC (LSE: HSBA) has had its share of challenges in the recent past. Geo-political stress in its important Asian market, and its own restructuring. As a result, the HSBC share price was falling even before 2020 happened. Most recently of course, there is Covid-19.
But can it bounce back now?
Positives for the HSBC share price
I think there are at least four reasons to be hopeful about the HSBC share price.
#1. Improved investor sentiment: the stock market rally that started in November pushed up share prices across segments, including banks. HSBC’s share price, too, benefited from it. It’s still much lower than its pre-market crash levels. But it’s almost 1.5 times higher than the lows of October too.
#2. Dividends restarted: HSBC cancelled dividends early last year as a precautionary measure. But along with its annual results release today, it has restarted dividends. Based on my estimates of its 2020 dividend, the dividend yield is 3.7%, which isn’t bad. Further, in its earnings release, the bank says that it will provide “sustainable dividends” going forward. These will be between 40% and 55% of reported earnings per share.
To me this translates into a confirmation that it will continue to pay dividends, even if the amount varies. As a long-term investor, I see some attractiveness to this dividend policy.
#3. Positive outlook: the bank is “cautiously optimistic” about 2021 and it says that it has had a good start to the year in its earnings release. This can be a positive for the HSBC share price this year.
#4. Focus Asia: HSBC’s results are muted but they do show clearly why the bank’s optimistic. The Asian market is responsible for its pre-tax profits, while its Europe business is making losses and the rest are way too small to really make a difference. Asian growth is expected to be back in 2021 as China continues to race ahead. This could bode well for the bank.
Risks to the share
However, the risks to the HSBC share price are big too. I see at least two big ones right now.
#1. Slowly receding pandemic: while I’m encouraged by the bank’s outlook, we can’t overlook the fact that Covid-19 will still take time to recede. In the UK, the lockdown will be over only six months into 2021. The pandemic’s real economic impact will be clear only after that. Increased bad debts and low demand for loans are possibilities that will affect the bank and also the HSBC share price.
#2. Geo-politics still at play: while some of its other global economy related concerns have lessened significantly, I think it’s still important to watch out for developments in Hong Kong, where tensions with China could bubble up again. The HSBC share price has been impacted by this in recent years, and could be sensitive to it in the future too.
The upshot
On balance, I think the winds are turning in favour of the HSBC share price, but I’m still somewhat cautious about buying banking stocks in general because of continued economic uncertainty. I cautious about HSBC in particular because of the continued Hong Kong-China situation.