Less than two years ago, HSBC (LSE: HSBA) was trading at 600p levels. It is down more than 33% now. It is easy to chalk this up to the pandemic. After all, banks are vulnerable to business cycles, and HSBC is no different. But that is not all that there is. The HSBC share price story is a complex one.
Geopolitics and performance
The multinational bank has dealt with quite a set of circumstances in recent years. The US-China stresses were a challenge for the bank, given its interests in both geographies. More tension followed for it as Hong Kong’s handover to China was accompanied by dissent. It did not help that there was unending uncertainty in the UK regarding Brexit. And this is just geopolitics.
Amid all this, in August 2019, the bank’s then CEO, John Flint, stepped down after just 18 months at the helm. HSBC’s shaky performance was one reason for this, which called for a painful restructuring that included big job losses. And soon after, the pandemic started. It could not get much worse then, really.
Is the worst over for the HSBC share price?
I do think that the worst may just be over for it now, though, going by the very firm steps it has initiated in the recent past. Between China and the US, HSBC clearly sees a future in China. While it decided to exit its US retail banking operations earlier this year, it has moved its senior management team to Hong Kong. This is a clear indication of its focus on the Asian market.
This could result in better numbers for it going forward. Besides this, the easing of Covid-19 also helps. In fact, HSBC’s results for the first half of 2021, released yesterday, clearly show a more than doubling in pre-tax profit because of a base effect. Last year, there was a huge drag on the bank as massive expected credit losses were pencilled in. However, the situation has normalised quite a bit now, which is a huge contrast.
Its outlook is also somewhat positive. It reports signs of pickup in lending as well as cost reduction. This should be a positive for the HSBC share price, as will its resumption of dividends. Even though the dividend amount is negligible, its return is positive.
My assessment
I am cautiously positive on the HSBC share price for now. Its geopolitical stresses may just reduce further. The pandemic will hopefully keep receding. And its restructuring could start paying off.
There is still much up in the air of course. The bank’s improved numbers are more because last year was poor than because of on-the-ground improvement in its business. I would like to see how its business progresses, which puts it on my investing watchlist. For now though, its share price could improve from here, but I still think it is a long way from 600p.
