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The market really doesn’t know what to make of HSBC Holdings at the moment. The brokers seem largely divided as to whether HSBC shares are a buy or a sell. A poll of six brokers by Hargreaves Lansdown last week saw one strong sell and two strong buy and the rest, well, not sure to be honest. The market – and investors – wants to be in love with HSBC, but HSBC is having problems looking after itself.

In the first week of February Autochartist had isolated a what looked to use like a convincing channel down pattern – i.e. a convincing downward trend – but was tentatively forecasting a rally. That was on 6 February when HSBC shares were trading at around 725.

Hargreaves Lansdown had this to say:

“In our view HSBC finally seems to be over the hump. Impairments from bad loans are falling, income is on the up and the key Asian region is growing. Return on equity, which fell to a measly 0.8% in 2016, has bounced back strongly now that a whole raft of exceptionals are in the past, and stood at 8.8% at the half year.”

The bank offers a prospective dividend yield of 5.2% and has completed or announced $5.5 billion of share buybacks since last summer. The big concern is that the dividend has stood still since 2015, and investors will want to know whether that can be sustained or indeed grown. Big questions for HSBC to answer this week.

HSBC has emerged from a very aggressive cost cutting program that it was forced to embark on following the financial crisis in 2008-09. Where HSBC has the edge against some of the other UK high street banking brands it is considerable presence in Asia, a market analysts are confident will continue to provide it with solid income, for example the trade finance business with China. The recent launch of HSBC Qinghai Securities, a joint venture in China which represents a big vote of confidence from the Chinese regulators, as it is majority owned, is seen as a signal that HSBC will continue to devote a lot of energy and attention to China in coming years.

These will be the first results to be released under the aegis of new CEO John Flint, who takes over officially from predecessor Stuart Gulliver this week. While there was some controversy surrounding HSBC’s ongoing focus on promoting from within, this does not seem to have really bothered savvy investors who will be looking for HSBC shares to break that magic 800 level in Q1.


The Armchair Trader says:

HSBC shares have been on a run upwards since February 6 (when they were trading at 727), we think in anticipation of some good numbers on Tuesday. The magic number here is 800. If you have held HSBC shares over the last couple of years, you will have seen some very good growth from this stock. If you want a banking stock in your portfolio, this is the one to own. It has been as high as 1000 before and there is no fundamental reason why HSBC shares can’t get back there, particularly as it is more diversified than many of its competitors, has that magic exposure to Asia, and weathered the financial crisis better than most, which illustrates its solid fundamentals as a bank.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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