The HSBC (LSE: HSBA) share price has plunged a staggering 30% in 2020. Investors have sold their shares as the coronavirus crisis has wreaked havoc on the global economy.
It seems the trade tensions between China and the West have also caused some investors to re-evaluate their view of the bank.
HSBC share price: the perfect storm
The HSBC share price now faces a perfect storm of economic and political tensions. The group, which used to bill itself as the world’s local bank, may now have to give up this title.
HSBC generates the vast majority of its profits from its operations in Hong Kong. So the group can’t afford to turn its back on this market.
At the same time, the company generates minimal returns from its operations here in Europe and the US. However, it could be hard for management to exit these markets. If it does, the lender would have to give up its global ambitions, which have helped support the HSBC share price.
Therefore, management will have to make some tough choices over the next few years.
HSBC has been slowly moving away from Western markets and repositioning itself in the faster-growing Chinese and Asian economies for the past few years. The current political climate may only lead the company to accelerate these plans.
Economic concerns are also holding down the HSBC share price. The coronavirus crisis has frozen global trade, and there has been a sharp increase in the number of companies facing financial difficulty. The group may have to write off billions of dollars of loans over the next few years. This may lead to a further decline in profitability.
It could be years before the global economy shakes off the impact of the coronavirus crisis, and during this time, HSBC’s profits are likely to remain depressed.
To try and cushion the impact of these defaults on the group’s balance sheet, the bank, as well as its peers, has already suspended its dividend at the request of regulators.
What does the future hold?
All of the above means that it’s tough to tell what the future holds for the HSBC share price.
If the group has to give up its presence in Western markets to maintain its profitable franchise in China, customers could move away from the lender to peers with a broader international footprint. This could hit profits in the long run.
Further, after the recent dividend cut, the HSBC share price no longer looks so attractive as an income investment. At this point, it’s not possible to tell if the lender will reinstate the payout and, if it does, at what level.
Considering all of the above, I would stay away from the HSBC share price for the time being. The bank is facing a range of headwinds, and it is quite difficult to tell what impact these will have on its long-term potential.
As such, many FTSE 100 peers seem to offer better long-term investment prospects.
