I have been an HSBC (LSE: HSBA) bull for a long time. In fact, just a couple of months ago, I almost saw my prediction about the stock coming true, when the HSBC share price touched 550p. This was very close to the 600p I had forecast. But it did not quite get there. No points for guessing why.
The Russia-Ukraine war led to a stock market plunge, which impacted almost all FTSE 100 stocks, including HSBC. But the banking corporation’s big problem is also the never ending Covid-19 problem in China. The country’s zero-covid policy has led to fresh lockdowns in key cities like Shanghai, and Beijing is expected to go the same route.
China’s growth slowdown
This is bad news for the bank, which decided to focus on its Asia business as part of its recent restructuring. That Chinese growth is expected to slow down now is likely to tell further on it. According to investment bank Nomura, China’s economy will increase by only 3.9% in 2022. This is not just a reduction from its earlier forecast of 4.3% growth, it is expected to be the lowest since 1990, if we exclude pandemic-ridden 2020 from the picture.
HSBC share price drops on poor results
HSBC’s latest results have already shown the impact of external events. The Russia-Ukraine situation and high inflation contributed to expected credit losses, as compared to gains in the same quarter last year. Its reported earnings are down by 4% as a consequence. Unsurprisingly, its stock saw a decline earlier this week as investors lost confidence.
The positives
I am, however, heartened by the fact that it has started inching up once again. I reckon that this is correlated with the overall pickup in mood, as evident from the fact that the FTSE 100 made gains yesterday. And it continues to do so today as well. But I think the bank’s own health and prospects are also a factor in its increase.
Even though its results were disappointing, they did beat analysts’ estimates, because of a rise in lending volumes. Also, note that the profits have dipped on expected losses, which might or might not happen. Even during the pandemic, banks reported poor results as provisions were made for bad loans. However, when the situation improved, their numbers improved drastically.
What about passive income?
Of course there is always the possibility the losses could indeed happen this time around. But still, I think there is room to hold out hope here. Also, the bank’s dividend yields is not too bad at 4.1%. The FTSE 100 dividend yield is at 3.6%, so it compares positively.
Yet, there is a chance that its dividends will be impacted if the situation continues to worsen. It has already ruled out buybacks this year, which would have been another way to provide shareholders with passive returns.
What I’d do
I am still fairly positive on the HSBC share price. But given the circumstances, much less so than earlier. I think we will know better how its situation looks as we move further into 2022. Until then, I will keep it on my investing watchlist. I think there could be other, and possibly bigger, dips in the stock, when I can buy it instead.
