Five years ago, I decided against investing in HSBC (LSE: HSBA) shares. I could see the appeal, but feared management would struggle to navigate increasingly tense relations between Washington and Beijing. Relations remain just as tense today, but the Asia-focused FTSE 100 bank has plotted a successful course between the two superpowers so far, helped by its decision to split operations in two.
In short, I got it wrong. The HSBC share price has climbed 178% over five years, with some chunky dividends on top. Happily for me, I put the money into Lloyds Banking Group instead, and its shares have done just as well. Swings and roundabouts. But is HSBC worth a look today?
Its shares are still flying, up 47% in the last year. That would have turned £10,000 into £14,700. With a trailing yield of 4.5%, investors would have got another £450 worth of income on top. So that’s a total return of £5,150 in 12 months, lifting that £10k to £15,150. Nice work.
FTSE 100 growth stock
That shows how investing in direct equities can build wealth in the good times. It’s also a handy reminder that there’s still plenty of excitement to be had on the UK’s blue-chip index, despite attempts to write it off. Equities are volatile, of course. HSBC could easily crash next year (although investors get to keep their dividends).
HSBC still looks reasonably priced with a price-to-earnings ratio of 11.9, although that’s double what it was a couple of years ago. Its price-to-book ratio has also roughly doubled, to around 1.3. It’s not expensive, but not screamingly cheap either.
China-US tensions remain, but having misread the risks before, I’ll set those aside. I am more concerned about the Chinese economy, which is still struggling to regain momentum, while the West isn’t exactly booming.
That hasn’t stopped HSBC though. In 2023, profits rocketed 78% to $30.3bn, with dividends raised and $7bn of share buybacks announced. The pace slowed in 2024 but profit before tax still ratcheted up to $32.3bn.
Profits and buybacks
In October, HSBC reported a 14% drop in Q3 pre-tax profits to $7.3bn, but that was largely due to a $1.1bn legal charge tied to a lawsuit over Bernard Madoff’s Ponzi scheme.
The board also paused buybacks, potentially for three quarters, as it builds capital for its $13.6bn buyout of Hong Kong’s Hang Seng Bank. Shares dipped 6% on the news, while broker Jefferies subsequently declared itself unimpressed by the terms. Bolt-on acquisitions are always tricky.
There are broader risks too, including rising commercial loan defaults in the US. Lest we forget, the UK is still a core HSBC market and not exactly booming. Further interest rate cuts are likely in 2026, which will squeeze net interest margins across the banking sector.
Many are nervous about the wider threat posed by the AI bubble. If it does burst and global markets plunge, HSBC wouldn’t escape the fallout. Personally, I’d see that as a buying opportunity. HSBC is making bags of money and has momentum on its side. I think it’s well worth considering with a long-term view.
