Why I think the HSBC share price bounce back is sustainable

HSBC has seen its share price bounce back about 15% this month. Here is why I think it could be the way of things to come.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

HSBC (LSE: HSBA) shares have seen a pretty poor year overall. At its low in September, the HSBC share price was almost half the value it started at in 2020. Since then though, it has begun to bounce back. Personally I think it could be on its way up for the long run. Let me tell you why…

Why did the HSBC share price drop?

This is the first question worth asking.

Naturally, Covid-19 is partly to blame. As the first lockdown hit us earlier in the year, markets were scared. Many industries seemed to be heading into disaster. As a negative for banks, this translates mainly to higher provisions for bad loans and failed debt repayments.

HSBC, as well as other major lenders, increased provisions for bad loans. This hit HSBC’s financial results hard. But they are just provisions, not actually losses. As government support schemes and financial backing helped businesses, these fears started to wane a little.

I should say these issues are still not entirely resolved, of course. We currently stand in the second lockdown of the year, and people still talk about a potential recession as a real possibility. However with positive news of a vaccine coming out, and the Chancellor’s strong attitude towards supporting the economy, I think this seems less likely.

One last point to note is that political trouble in Hong Kong has also been weighing on the HSBC share price. Earlier in the year particularly, anti-government protests were raging in the region.

As the year has moved on, these troubles have also lessened. China has got a better hold on Covid-19 than most of the rest of the world. For HSBC and its share price, as Asia bounced back, its prospects improved.

Is the bounce back a fundamental change in its prospects?

For me, this is the next important question.

Personally, I think the answer is “no, but yes”. Some of this recovery in the HSBC share price is, I believe, a removal of pressure. I believe the price was oversold most of the year. This bounce back is perhaps a recovery to more reasonable levels. However…

This removal of fears, so to speak, should perhaps let investors see HSBC’s true potential. The bank is undergoing a fundamental reorganisation that, I believe, will help secure its share price in the future.

In the main, this involves reducing its headcount and shifting capital towards its more lucrative market. This means shifting assets and people from the US and European divisions into its Asian arm.

HSBC makes most of its money in Asia. Its US business particularly, has seen only lacklustre performance. Moving resources from areas of less profit into its highest performer should bring exponential gains if done right.

The last consideration is the HSBC dividend. Though suspended this year, there has been talk recently of its possible reinstatement. The bank was previously offering one of the highest yields in the FTSE 100. If we see payouts return, the HSBC share price should get long-term support. If this happens, I think this bounce back may be sustainable for quite some time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has shares in HSBC HoldingsThe Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »