As HSBC shares slide, should I jump in and buy?

Christopher Ruane considers some pros and cons of adding HSBC shares to his portfolio. Will he decide to take the plunge amid current market conditions?

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Bank shares have had a punishing few days – and that includes HSBC (LSE: HSBA). HSBC shares have fallen around 14% so far in March. They are still up 10% compared to a year ago, but are 17% down over a five-year timeframe.

Does that give me a buying opportunity to snap up some shares in this global banking giant?

Extensive operations

HSBC has a lot going for it. As its full name — the Hong Kong and Shanghai Banking Corporation suggests — the heart of its business is in Asia. It is a major player there, notably in Hong Kong. Indeed, last year 78% of its reported profit came from its Asian operations.

But the business also has substantial operations elsewhere, including in the UK. That means owning HSBC shares could give me a much broader international exposure than investing in more domestically-focused competitors such as Lloyds and NatWest.

On top of that, HSBC is a financial juggernaut. Last year, profits slipped slightly but still came in at $17.5bn. With a large customer base, major brand and leading position in some key markets, I think the financial institution has the capability to keep making strong profits far into the future.

Risk profile

However, HSBC also faces risks. At a time of geopolitical tension, its approach of keeping one foot in Asia and the other elsewhere can heighten the political risks faced by the bank.

HSBC also has to deal with a raft of risks currently affecting other banks both in Europe and Asia. Those include the possibility of rising defaults by lenders, risks of a housing slowdown both in Asia and Europe, and knock-on effects from the failure of other institutions.

In fact, I see right now as a risky time for me to be buying bank shares. The reason HSBC shares have fallen lately, along with their peers, is that it is still not clear how wide and deep the emerging banking crisis will be.

That puts me right off such stocks at the moment – including HSBC. Although there is the potential of a rewarding investment, I also think are risks I am not comfortably able to assess.

Next move

That could change. If the sector bounces back and seems to be in good shape, then bank shares could increase in value. With a price-to-earnings ratio below 10 at the moment, I do think HSBC shares look cheap relative to their long-term potential.

They also offer a 5% yield. The current dividend equates to just 42% of last year’s earnings, meaning that the firm could boost it even if profits are flat or fall slightly.

If the banking sector settles down and the economic outlook becomes clearer, I may have another look at HSBC shares to consider whether the business’s strength makes it a good fit for my portfolio. For now, though, I do not like the risks I see in the sector in general. So I have no plans to purchase HSBC shares.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group Plc. 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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