HSBC (LSE:HSBA) shares are up 46% over 12 months despite being down 8% over the past week. Even with this seemingly stellar performance, this is a laggard among FTSE 100 banks. The sector has had an incredible year.
So, £10,000 invested in HSBC shares one year ago would now be worth £14,600. And the shareholder would have received around £550 in the form of dividends. Certainly not to be sniffed at, but equally it’s a sector underperformer.
What’s driving the price higher?
HSBC’s 46% surge over the past year was driven by its resilient earnings, strategic initiatives, and macroeconomic support. The bank’s fourth-quarter results highlight this strength. Underlying pre-tax profit reached $7.3bn, translating to a robust 16% return on tangible equity (RoTE).
Despite one-off items causing some volatility in reported figures, HSBC’s core profitability remains solid, supported by its focus on wealth management, fee-based income, and cost efficiency. The bank’s wealth segment, in particular, saw a 20% increase in fee income, with double-digit growth expected annually over the next three years.
Macroeconomic factors have also played a significant role. Asia’s economic recovery, especially in China and India, has driven growth in trade and investment flows, benefitting HSBC’s transaction banking and wealth divisions. While declining interest rates have weighed on net interest income, HSBC’s proactive hedging strategy has helped stabilise earnings. Additionally, higher rates earlier in the year expanded the bank’s net interest margins, though this is expected to moderate as rate cuts progress.
HSBC’s commitment to shareholder returns, including a $2bn buyback and a 43% dividend increase, alongside its cost-saving initiatives, has further strengthened investor confidence. These factors justify the stock’s re-rating and support its premium valuation.
Elevated valuation but still discounted
HSBC remains cheaper than its US peers despite its recent rise. The price-to-earnings (P/E) ratio of 8.9 times for 2024, 7.9 times for 2025, and 7.2 times for 2026 compares favourably versus US banks.
However, this lower valuation reflects concerns over certain aspects of its business, particularly its exposure to China and the impact of a global rate-cutting cycle, which has pressured its net interest margins.
Nonetheless, it’s worth noting that this China concern is also a key plus point for some investors. HSBC is continuing its shift to Asia. In fact, it recently said it was cutting investment banking jobs in London as part of a restructuring plan.
The bank aims to reduce costs by $1.5bn by 2026 and wind down its investment banking operations in the West, particularly in Europe and the Americas. In short, HSBC’s strategy underscores its commitment to Asia, its most profitable market, while scaling back less lucrative Western operations.
Personally, I’m sitting on the sidelines. I appreciate the dividend is sizeable. But I’m actually more worried about geopolitical concerns in the near and medium term. This is especially the case with Donald Trump in the Oval Office.
