Shares in the FTSE 100’s two China-focused banks, HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) and Standard Chartered, have both fallen over the past 12 months.
HSBC has slipped 5% to 662p, but that includes a late 2013 dip — since January the price is down just 1%. I reckon there’s a strong chance HSBC will end the year ahead of the index.
East vs West
While the Western-oriented banks were building up huge mountains of toxic assets, HSBC and Standard Chartered largely avoided it by doing most of their business in Asia and doing it a good deal more competently.
But as the Western recession receded, China hit problems of its own. Its annual growth had led to a lending bubble supported by escalating property prices, just like in the West. And unsurprisingly, that raised fears of a similar crunch to come — and that would hurt HSBC.
From around 750p in mid-2013, HSBC shares slid all the way to 590p by July this year, for a 20% fall.
I reckoned HSBC shares were too cheap, suggesting that “…the risk is overstated and has helped to push the share price down further than it deserves“, and the price has since staged a 12% recovery. What has caused the change in sentiment?
A good first half
Interim figures in August looked positive, with chief executive Stuart Gulliver telling us that HSBC’s “…continuing ability to generate capital supports both growth and our progressive dividend policy“.
Things are changing in China, too. The government has been trying to move away from big public projects and towards more free market investment, targeting a growth rate of 7% per year.
And the property market is cooling — August saw new home prices fall for the fourth month in a row, with some analysts predicting a relatively long period of stagnation. That does raise the spectre of that feared crash, but with the government pumping cash into state-owned banks in a move that should provide stimulus, a gradual slowdown is looking more likely than anything worse.
Over the past year, analysts have downgraded their HSBC forecasts only modestly, and the 6% and 7% EPS growth forecast for this year and next suggest P/E ratios of only 12 and 11.3 respectively. That’s not expensive.
Upwards, surely?
With dividend yields of around 5% and a Strong Buy consensus from the brokers, I can only see HSBC shares ending the year bullishly.
