If I’d invested £1,000 in HSBC shares a year ago, here’s how much I’d have now!

Dr James Fox takes a closer look a HSBC shares after the recent stock market correction. The banking giant is among his top picks right now.

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HSBC (LSE:HSBA) shares tanked in March along with other financial stocks. The correction was caused by concerns emanating from the US and Silicon Valley Bank (SVB), which had been compelled to sell bonds at losses.

So let’s take a look at its performance over the past year, and see what could be next for HSBC.

One year

Over 12 months, HSBC is up 5%. And if I had stayed invested for the entire 12 months, I would have received around 4% in dividends. So total returns of 9%. That’s not too bad at all.

However, this is only part of the story. That’s because HSBC, alongside other bank stocks, peaked in late February, early March, and plummeted after the SVB fiasco.

We’re now seeing some upward movement again. Investors are realising that big banks are a lot more secure than some had suggested.

The correction

HSBC was one of the biggest UK-based fallers during the correction, along with Standard Chartered and Barclays. At its nadir, the stock was down over 20%.

The correction stemmed from SVB and the notion that other banks had unrealised bond losses. SVB’s $21bn bond portfolio had a yield of 1.79% and a duration of 3.6 years.

The thing is, bond prices fall as yields rise. And interest rates have been rising — a lot — over the past 18 months.

But HSBC, like any bank, doesn’t need to disclose these unrealised losses on bonds. Moreover, the bank isn’t over exposure to one sector — SVB was a tech financier — and depositors aren’t clamouring for their money back.

As such, there is no need to sell loss-making bonds. Instead, these bonds will likely be held through to maturity.

Buying the dip

I’ve been topping up on HSBC with the share price falling. The stock currently trades with a price-to-earnings of just nine, and offers a 5% dividend yield. In terms of valuation, that’s a little above some of the UK-focused banks, but it reflects HSBC’s focus on higher growth markets, including China.

I still think it’s great value. Higher interest rates are major reason for my optimism here.

Right now, it’s possible that rates are getting a little too high for banks, in the UK and elsewhere in the world. When rates are uncomfortably high, borrowers struggle and debt can turn bad. This is why impairment charges were so high over the last year, as individuals and companies alike faced financial challenges amid rising borrowing costs.

However, the medium-term forecast, in the UK at least, is to see interest rates fall to more manageable levels. For many banks, the ideal central bank rate would be around 2-3%. This is where net interest margins remain elevated but impairment charges should be lower.

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. James Fox has positions in Barclays Plc, HSBC Holdings, and Standard Chartered Plc. . The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Standard Chartered 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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