The HSBC Holdings (LSE: HSBA) share price has bounced strongly after striking 10-month lows in September. However, this isn’t because the threat of a Chinese property market crash has receded. Indeed, developer Fantasia Holdings has just missed a debt repayment to exacerbate the panic created by the troubled Evergrande.
Construction accounts for around 25% of China’s GDP and so investors need to remain wary of the impact this could have on Asia-focussed stocks like HSBC. Of course, banking stocks like this are directly exposed to a collapse in the real estate market too. But could it be argued that this risk is baked into HSBC’s share price today? The business trades on a forward price-to-earnings (P/E) ratio of 8.8 times, inside the widely-regarded bargain benchmark of 10 times.
HSBC’s share price is “too cheap”
I’d also like to defer to what analysts at UBS think about HSBC at recent price levels. In a note of 5 October, it said “HSBC is the largest European bank underweight with 50% relative underperformance since mid 2019,” with concerns over central bank interest rates, China-linked real estate markets, geopolitics and company restructuring all weighing on performance.
It adds that HSBC’s share price commands a P/E multiple of just 7.9 times for 2020. And that this drops to 5.6 times for 2022, a valuation UBS reckons is “too cheap for a stock representing 11% of the European bank index and possessing excess capital, excess credit reserves and longer-term growth in Asia.”
The promise of soaring financial product demand in Asia is what makes HSBC one of the best banking stocks to buy now. It’s what sets it apart from UK-focussed operators like Lloyds and Natwest where economic growth is likely to be quite tepid by comparison. According to McKinsey and Co, personal financial assets in Asia will grow to $69trn by 2025, driven by rising wealth levels and a bulging middle class. This will represent “approximately three-quarters of the global total.”
HSBC will have to work hard to bat away the threat of digital-focussed challenger banks in the region. These have grown rapidly in Asia as populations have become more tech savvy. But I still think the FTSE 100 bank has the expertise and the clout to capitalise effectively on its fast-growing markets.
I’d also buy HSBC because of its brilliant dividend potential. As UBS notes, HSBC’s rock-solid balance sheet makes it deserving of serious attention today. In fact, its healthy capital position leads City analysts to expect glorious dividend growth through over the medium term.
The consensus suggests that 2020’s reduced payout of 15 US cents per share will improve to 22 cents this year, and to 28 cents in 2022. So at HSBC’s current share price this leaves giant yields of 4.2% and 5.1% for 2021 and 2022 respectively, way above the broader FTSE 100 average of 3.5%.
All things considered, I think HSBC’s a great buy for me for growth and income now and in the future. And I think it’s a steal at current prices.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.