HSBC (LSE:HSBA) is the relative laggard among FTSE 100 bank shares this year. As I write this just before Christmas, it’s trailing Lloyds, NatWest, Barclays and, especially, Standard Chartered.
Yet I can’t grumble. Even if it’s not top of the Footsie tree, it’s still delivered a 50% return, with dividends on top.
Looking ahead to 2026, however, I don’t think bank stocks will record the same type of barnstorming returns (but I hope I’m wrong, of course).
As such, I’m wondering what to do with my HSBC shares. Should I bank profits (pun intended)? Buy more? Or just do nothing?
Returns
My brokerage account tells me that I bought HSBC shares twice in the first quarter of 2024 for a weighted average price of 610p. Now trading above 1,100p a pop, they’re up significantly.
Indeed, with dividends, I calculate that I’ve roughly doubled my money. I wish all my stock gains were this good inside two years — but they’re not!
Dividend yield
One of the key attractions when I first bought HSBC was the forward-looking dividend yield, which stood at 7.5% at the time. Obviously it’s lower now due to the share price surge, but it’s still a respectable 4.9%.
Given that I’m anticipating lower share price returns in 2026, the dividend is important to me.
Meanwhile, the forecast payout is covered twice over by expected earnings, suggesting a strong margin of safety (though not guaranteed, of course).
Valuation
Turning to valuation, the stock doesn’t look expensive, at 10.4 times forward earnings. But I wouldn’t say it’s noticeably cheap, with the price-to-book ratio now at 1.4.
Basically, HSBC appears fairly valued to me, which is why I’m not expecting another 50% rise this year. Analysts see a steady 5%-6% rise in earnings this year and next.
One risk here is some unseen danger lurking in HSBC’s main markets of Hong Kong and China. This is difficult to foresee, but management reckons the worst of China’s property crisis has passed. Time will tell.
Also, HSBC is purchasing the remaining 37% it doesn’t already own in Hong Kong’s Hang Seng Bank. Due to the $13.6bn price tag, the board has paused share buybacks for up to three quarters.
HSBC is paying a 33% premium. If Hang Seng doesn’t deliver decent growth post-deal, the returns may look mediocre in hindsight.
Our intention to privatise Hang Seng Bank is an investment for growth in a home market we know very well…We will invest further in our relative strengths to respond quickly to market and customer needs as we serve Hong Kong’s many growth opportunities ahead.
HSBC CEO Georges Elhedery.
Future prospects
Looking ahead, I’m still very bullish on HSBC’s prospects in Asia. This region is expected to deliver robust growth over the next two decades, driven by rising middle classes, disposable income, and demand for financial services.
HSBC is leaning into wealth management as a core growth engine, and it’s certainly in the right place, with Asia’s middle class and high-net-worth population expanding rapidly.
Sell, buy or hold?
Weighing things up, I’m going to do nothing (my preferred modus operandi at this time of year). I’ll keep holding my HSBC shares in 2026.
But if the global banking sector has one of its semi-regular wobbles next year, I may be tempted to top up.
