After underperforming the FTSE 100 in August (a 10% fall versus the index’s 5% decline), HSBC (LSE: HSBA) bounced back in September. Its share price rose 6% over the month, from 591.4p to 624.6p, which was double the Footsie’s 3% gain. Can it continue to outperform the market going forward?
Little company news
Despite the Footsie-beating performance in September, HSBC’s gains lagged those made by its four blue-chip banking peers, as well as most other stocks in the broader financial sector.
The company released little of import on the regulatory newswire over the course of the month. In August, it had announced a share buyback programme of up to $1bn by 18 October, and the bulk of September’s notices detailed multi-transactions to this end.
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External events
External, rather than company news, seems to be moving the share price at the moment. HSBC — originally Hong Kong and Shanghai Banking Corporation let’s not forget — makes most of its profit in Asia, with Hong Kong by far the biggest contributor. Of group profit of $12.4bn posted in the latest half-year, $9.8bn came from Asia, with Hong Kong being responsible for $6.4bn of it and China $1.5bn.
The demonstrations in Hong Kong that began in the spring and developed into mass protest movements in the summer are having an adverse effect on the economy. As the protests, and political responses, have unfolded, HSBC’s shares (and the shares of other companies in the region) have waxed and waned with the latest developments.
It’s been the same story with the ups and downs of the ongoing US-China trade battle. A bout of optimism about progress in mid-September saw HSBC’s share price reach its peak for the month of 630.7p. However, let’s zoom out from the minutiae of the month, and look at a broader picture and timeframe.
The big picture
After the big sell-off in global markets in the past few days, HSBC’s shares are trading at under 600p as I’m writing. This compares with a post-financial-crisis high of near to 800p less than two years ago when markets were in a more optimistic mood.
The way I see it, the key questions are: “Does the long-term story of rising wealth in Asia, and other emerging markets, remain intact?” and “Can HSBC deliver strong long-term profit and dividend growth, if managed competently?” If your answer to those questions is “yes”, then like me, you’ll see the current uncertainties and depressed share price as a great opportunity to buy into this blue-chip giant.
Valuation
The stock is trading at 10.2 times forecast earnings with a prospective 6.9% dividend yield. The earnings multiple is cheap and the yield is generous by HSBC’s historical standards. I put this down to the market focusing on the aforementioned immediate matters of Hong Kong protest and US-China trade, rather than the long-term prospects of the business.
Aside from the near-term external uncertainties, HSBC currently has a bit of internal uncertainty that could also be weighing a little on sentiment. It’s searching for a new permanent chief executive following the rather abrupt departure of John Flint in August, less than 18 months after his appointment. Hopefully, it won’t be too long before the group announces its new CEO.
