Things couldn’t get much worse for the FTSE 100 banking and financial services corporation, HSBC (LSE: HSBA). Yesterday, the HSBC share price was trading at the lowest levels since 1995. It has recovered since, but only just. The crash followed allegations of money laundering by it and other banks. This only adds to the long list of challenges the bank needs to address.
Coronavirus and recession impact
For an entity already in the midst of restructuring, from an investment perspective, the question increasingly is this – How many challenges is too many? Think about it. Coronavirus has hit the entire economy hard, but some sectors are harder hit than others. These include banks. Dividend suspension, falling interest rates and subdued credit offtake are the fallouts of a weak economy. With the government tightening regulations on public life again, the slowdown will continue. This will tell on the HSBC share price, and indeed the entire FTSE 100 index.
HSBC share price under pressure from geo-political challenges
Further, the HSBC share price has been hammered because of geo-political conflict in Hong Kong. The Chinese handover has been anything but easy. And for a bank that depends on the Asian market for a substantial portion of its earnings, this was evidently bad news. Added to this are the Brexit challenges in the UK. Britons in the EU have been informed that some of their UK bank accounts will have to close because of a no-deal Brexit. While HSBC has so far been spared from this, it has mentioned that customers will be informed of any changes that will affect services.
As a result of both the pandemic and the ongoing geopolitical situation, HSBC’s financials have been impacted significantly. For the first half of 2020, its profits were down 69%. Its next quarterly earnings report is due in October. I reckon that it could continue to weaken. This in turn, could drive the HSBC share price down even further.
What I’d do next
So far, I have been somewhat bullish on HSBC from a long-term investing perspective. It’s a large, international banking corporation, which is facing struggles outside its control. But in so far as it was undergoing restructuring, there was potential of the HSBC share price getting back on track. However, with Covid-19 worsening the situation and the latest news reveal causing some reputational damage for now, I think it’s better to hold HSBC shares rather than buy and hold them for the long term. I’d much rather let the situation play out over the next year or so before taking stock of the bank’s fortunes again.
In the meantime, I think it’s entirely possible that the HSBC share price will rise speculatively. It often happens after a sharp correction, that share prices pick up somewhat. However, until such time as there’s fundamental basis for believing that HSBC is in a good way, I would think a long-term investor should just hold on to the stock for now.
