The HSBC share price is rising fast. Would I buy it?

HSBC (LSE: HSBA) was the biggest FTSE 100 gainer as markets opened today. The HSBC share price is up almost 2% so far, continuing its gains from yesterday. 

Why is the HSBC share price up?

These gains follow its exit from US mass-market retail banking. It has been providing banking services to low-banked or unbanked segments. This decision was driven by the lack of scale required to compete, according to the bank’s own assessment. It will however, focus on wealth management in the market. 

This decision to exit the loss-making business can be seen in light of HSBC’s ongoing restructuring. This includes an Asia focus, recently made evident by the relocation of its top leadership to Hong Kong from London.

Favourable conditions for the HSBC share price 

In an article I wrote in February, I had said that on balance, I thought the winds were turning in favour of the HSBC share price. One reason for this was its Asia focus at a time when the Chinese economy was recovering fast. The others were an overall improvement in investor sentiment, its reinstatement of dividends and a positive outlook.

Its latest progress in streamlining its business only adds to the build-up of conditions in its favour, I feel. From February to now, its share price is up almost 8%. Over the past year, its growth has been even higher 21%, indicating that the bank has come a long way since the stock market crash of 2020.

What about the risks?

However, when I last wrote about the HSBC share price, I was still cautious for two reasons. One, economic uncertainty that can drag down banking stocks and two, the impact on the bank from the China-Hong Kong situation. 

I am less concerned about current economic uncertainty and its impact on HSBC now. Three months of data points have shown that the economy is indeed on the path to recovery. Easing of lockdowns in the interim have contributed further to it. 

On the China-Hong Kong differences, reports suggest continued challenges in the region. In fact, HSBC in its recent results also pointed this out as a geopolitical risk. But at the same time, it cannot be ignored that the bank is shifting its focus towards Asia, not away from it as it is a big source of its earnings. But if Hong Kong’s challenges were a big enough risk in HSBC’s view, I doubt that it would go ahead with the plan. 

However, while these risks to the HSBC share price look smaller to me, inflation is a new threat on the horizon. A direct impact of this can be higher interest rates. Increasing interest rates often accompany economic acceleration. However, it is worrisome at this point because the recovery is yet to truly take hold. If interest rates increase and the recovery slows down, it is a double negative for banks because demand for loans is impacted by both. I would watch out for this.

My takeaway

As such, I am still on the fence about buying HSBC shares.