Should I buy HSBC shares after their recent pullback?

HSBC shares have fallen more than 10% since August. Edward Sheldon discusses whether he’d buy the bank stock now.

| More on:

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.

Young Black man sat in front of laptop while wearing headphones

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

HSBC’s(LSE: HSBA) share price has pulled back recently. Back in August, it was above 550p. Today however, it’s near 480p. Is this a good opportunity to buy HSBC shares for my portfolio? Let’s take a look.

The shares look cheap

HSBC shares do look quite cheap at the moment. Currently, analysts expect the bank to generate earnings per share of 80.1 cents (HSBC reports in US dollars) for 2022. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of just 7.1, which is low. To put that figure in perspective, the median P/E ratio across the FTSE 100 index is about 13 right now.

Lower profits

Cheap stocks are often cheap for a reason however. And in HSBC’s case, the company is facing a few challenges right now.

One is larger loan losses as a result of weakening economic conditions. For the third quarter of 2022, HSBC reported expected credit losses (ECL) of $1.1bn (versus $659m a year earlier), reflecting increased economic uncertainty, higher inflation, and ongoing developments in China’s commercial real estate sector. This dragged profit before tax down 42% year on year to $3.1bn.

Looking ahead, HSBC said that it expects ECL for 2023 to be at the higher end of its planning range of between 30 and 40 basis points of average loans.

Pressure from major shareholder

Another issue here is that the bank is under pressure from its largest shareholder, Ping An Asset Management. Ping An is not happy with HSBC’s performance and has urged it to cut costs aggressively and exit sub-scale non-Asian markets. It believes HSBC should spin off its Asia operations.

HSBC doesn’t want to do this, as this move would have a negative impact on its credit rating, operating costs, and tax bill. So this may not happen. However, the pressure from Ping An adds some uncertainty in terms of the investment case here.

Benefiting from higher interest rates

Now there are a few reasons to be optimistic about HSBC shares. Higher interest rates are one. For Q3, the bank’s net interest income surged 30% to $8.6bn, helped by higher rates.

Its focus on growth markets is another. One of HSBC’s goals is to shift capital towards areas such as Asia and wealth management, which generate higher returns. It believes this shift will enable it to achieve solid top-line growth in the medium to long term.

Of course, there’s also the dividend here. Currently, HSBC shares have a yield of about 5.3%.

Should I buy the shares today?

So am I a buyer of HSBC shares given all of the above? The answer right now is no.

I do think the bank stock looks cheap. However, with the global economy weakening, I am happy to leave the stock on my watchlist for now and focus on other investment opportunities.

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 assessed. Consider taking independent financial advice.

Edward Sheldon 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »