Recently HSBC (LSE:HSBA) announced that it is paying a dividend again despite the ongoing pandemic. While the bank paying dividends again (albeit a modest initial one) restores some normalcy in my view, I reckon the leading British and Hong Kong bank has other appealing aspects. Here are two big reasons why I think the stock is attractive given the current HSBC share price.
One reason why I like HSBC at its current share price is because the bank has a strong business in Asia. HSBC operates in 19 markets across Asia that collectively cover 98% of Asia’s total GDP. In many of those markets, the bank has been around for a while and thus it knows the customers and their cultures pretty well.
I reckon HSBC’s extensive Asian business is a ‘plus’ given that many countries in Asia are growing fairly rapidly as they develop. According to the company, Asia contributed 71% of total global economic growth in 2019 and the area is expected to account for almost half of global GDP by 2025.
With the macroeconomic growth in Asia comes potential for HSBC to grow as well. If clients spend more in the region, for example, HSBC could potentially make more in terms of fees. Going forward, gaining more clients could drive growth as well.
Another reason why I like HSBC at the current share price is due to fiscal policy. Specifically, President Joe Biden recently signed a $1.9trn stimulus bill that many economists think will benefit the US economy meaningfully. Treasury Secretary Janet Yellen previously commented on the stimulus package, “I would expect that if this package is passed that we would get back to full employment next year“. The next year in the comment would be 2022, also a year when many expect numerous places around the world to control the pandemic. Janet Yellen might know a thing or two about full employment and how to get the US economy closer to that level given that she was formerly the Chair of the US Federal Reserve.
Although HSBC doesn’t make most of its money from the US, the bank nevertheless benefits if the US economy is stronger, in my view. A robust US economy could drive more demand for other countries’ exports and thus help economies around the world. A stronger US economy could also potentially mean faster normalization of interest rates.
The HSBC share price: what I’d do
HSBC has potential downsides. I reckon the bank could suffer greater than expected loan losses that could hurt its stock price if the pandemic worsens or lasts longer than expected. In the past, management has made some bad M&A deals that have destroyed value. If the bank makes future bad M&A deals, its stock might not do well.
Nevertheless, I’d buy and hold HSBC because I reckon it’s a good value investment. At the current HSBC share price, the stock trades at a price-to-book ratio of around 0.7, which I find attractive given the bank’s many competitive advantages and future expected profit growth.
Jay Yao has no position in any of the shares mentioned. The 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.