My HSBC shares could tank if China invades Taiwan

We’ve seen the sanctions imposed on Russia after its invasion of Ukraine. How would world leaders react to a similar act from China, and would my HSBC shares fall off a cliff?

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

HSBC Holdings (LSE:HSBA) is one of the biggest banking groups in the world, with assets of approximately US$3trn. According to the company’s latest annual report, 65% of its profits are derived from Asia and the bulk of these from China. HSBC shares are owned by 187,000 shareholders in 128 countries and territories.  

I’m nervous. I am one of those shareholders, and believe there is a risk to the company that is totally outside its control but that should be considered as a worst-case scenario. Russia was the elephant in the room that too many investors ignored a few months ago, and China may be another one now.

On 30 May, 30 Chinese military aircraft flew into Taiwan’s Air Defense Identification Zone. In response, Taiwan scrambled its own planes and positioned air defence missile systems in readiness for an attack. Fortunately the Chinese planes departed without firing a shot, but China has almost doubled the amount of these incursions this year compared to 2021.

China’s President Xi Jinping has stated he wants to see “reunification” with Taiwan. If China did invade, then sanctions would almost certainly follow. Furthermore, US President Biden said the US would defend Taiwan militarily if it invaded. It would be carnage, due to China’s pivotal position in the global economy. Military and stock market carnage.

If sanctions were to prohibit companies from operating in China then it would be catastrophic for HSBC, immediately impacting on operations in its most lucrative market and jeopardising its capital buffers and liquidity. Just imagine it, The Hong Kong and Shanghai Banking Corporation Limited, commonly known as HSBC, being unable to operate in China…

However, there are those that believe HSBC is so integral to global financial liquidity that it would have to be exempted from punitive action against China. Remember in the 2008 financial crisis when other banks were going bust or being bailed out, HSBC was considered “too big to fail”, as if it did fail it would bring many more banks and financial institutions down with it. The stock market appears to be giving HSBC the benefit of the doubt for this reason, perhaps, and with its share price of 520p recovering nicely from its low point in the last year of 358p, investors also appear to believe there will not be another war.

Nevertheless, I am considering selling approximately 20% of my HSBC shares as a precaution, and am watching the situation closely in case I need to sell more — although if an invasion were to occur when the stock market is closed, I would be too late…

People thought President Putin’s army would not invade Ukraine despite their military manoeuvres, but they invaded. Let’s hope China’s military manoeuvres do not presage another invasion.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Michael Wood-Wilson has shares in HSBC Holdings. 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.

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