HSBC (LSE:HSBA) shares jumped 5% in Thursday’s (10 April) morning session reflecting broader market optimism after Donald Trump paused the introduction of higher tariffs on 75 nations. This move has provided temporary relief to global markets, but HSBC’s significant exposure to China places it at the centre of ongoing trade tensions between Washington and Beijing.
Closing short positions
I’d be cautious to say that the rally in US stocks on 9 April and European stocks on 10 April are real, lasting rallies. It likely reflects two things. Firstly, the pausing of higher tariffs for 90 days probably means that the worst possible trade outcome is off the table. The second is short covering. That is, traders who had bet against the market by taking short positions were forced to buy back shares to close those positions as prices began to rise. This buying pressure can accelerate upward moves. This also creates the appearance of a broader rally even if underlying sentiment hasn’t fundamentally improved.
China exposure: a double-edged sword
HSBC’s deep ties to China are both a strength and a vulnerability. The bank has invested heavily in its mainland operations, with $450m earmarked to expand its presence by 2025. The bank operates 150 branches across 50 cities in China. It employs over 7,000 staff and providing services ranging from wealth management to global banking. This extensive footprint means that HSBC is the foreign bank with the largest geographical reach in mainland China.
China accounted for 63% of HSBC’s revenues in 2024. This far surpasses contributions from other regions such as the UK (22%) and North America (3%). While this positions HSBC to benefit from China’s long-term growth potential, it also exposes the bank to risks stemming from escalating trade tensions. With the US-China trade war intensifying and tariffs on Chinese imports reaching as high as 125%, it has effectively made trade between the two nations unviable as it stands.
In 2023, Chinese exports to the US accounted for around 2.8% of GDP. With that in mind, and should these tariffs stick, it’s hard to imagine how China couldn’t see a considerable economic slowdown, even if it does introduce new stimuli. Of course the tariffs, in their current form, would remain a worst-case scenario.
The bottom line
The current earnings forecasts — made and compiled before the sanctions were introduced — looks strong. The stock is trading at 7.6 times forward earnings, and this falls to 6.7 times for 2026 and then six times for 2027. Coupled with a 7.3% dividend yield — rising to 8.4% for 2027 — it looks good value. However, I’m very cautious to make hasty investment decisions at this moment in time. While I’d expect a negotiated outcome to Trump’s trade war, HSBC would be heavily exposed to any negative outcome for China. That’s why I’m not buying right now.
