I’ve had an eye on HSBC (LSE: HSBA) shares all year, wondering if I should add the FTSE 100 bank to my portfolio.
The HSBC share price is up a modest 10.65% over the past 12 months. However, over three years it’s up a thumping 56.74%.
Yet despite that, the Asia-focused bank has a lowly price-to-earnings ratio (P/E) of just 7.69. That’s roughly half the FTSE 100 average of 15.4 times.
Can this FTSE 100 bank keep climbing?
Although it’s not such an outlier when I compare it to other FTSE 100 banks. Lloyds Banking Group has a P/E of 8.16 times while NatWest Group has a P/E of 7.29 times. That’s despite strong share price growth over the last year. It’s a sector thing.
Where HSBC really scores is the dividend income. The shares currently have a trailing yield of 7.16%. That compares to 4.48% for Lloyds and 4.77% for NatWest. The forecast yield is a staggering 9.1%.
HSBC’s board has also been lavishing investors with share buybacks. They totalled £7bn across the 2023 financial year, and the money keeps coming. Departing CEO Noel Quinn handed shareholders $36bn in dividends and $18bn in buybacks in a little over four years.
I’d love to have shared in that, but rising tensions between China and the West have held me back. I felt that at some point, HSBC would have to choose between the two. And now it has.
Trying to keep both sides of the East/West divide happy was in danger of tearing the banking apart and new CEO Georges Elhedery has done just that. On Tuesday, we learned that he’s splitting the group into Eastern and Western markets.
Away from Western eyes
That’s hardly surprising. Last year, The All-Party Parliamentary Group on Hong Kong accused the bank of “doing the dirty work of the Chinese Communist Party”, by freezing the accounts of pro-democracy activists. HSBC defended itself by saying that it has to obey local laws, wherever it operates.
In 2023, HSBC made profits of $8.3bn in the UK. These were overshadowed by the $16bn-plus it made from China and Hong Kong. The board has made its choice and basically, it’s just not that into us.
China is where the action lies and but although this is a massive market, it’s not a surefire winner, as we’ve seen lately. Yet Elhedery is also creating a new wealth division with designs on the Middle East, giving it a huge opportunity in the high net worth market. This could be an exciting new opportunity for the bank and shareholders.
HSBC shares look great value given the outsize long-term opportunity, tidier set up and reduced political risk. I think it’s time to stop over-thinking this and add HSBC to my portfolio.
