I bought Lloyds (LSE:LLOY) shares back in late 2023 at 41p a pop, intending to hold them for at least five years. But then I sold them less than a year later for around 60p each.
Normally, a 46% return excluding dividends would be a cracking result. However, after I flogged the Black Horse bank, it went from a trot to a canter then eventually a gallop.
As I type, the FTSE 100 stock’s at 105p. So it has surged another 75% since!
Do I bitterly regret my decision then? Not really, because the stock I bought in place of Lloyds has also been going great guns.
I’m talking about HSBC (LSE:HSBA), which has more than doubled since I added to it with the Lloyds cash. Then there have been generous dividends on top.
So it hasn’t been disastrous. Far from it.
But why did I sell?
There were a handful of reasons why I made the switch. First off, HBSC stock was paying a 7.2% dividend yield at the time, far higher than Lloyds’ 4.7%. That means I locked in a higher yield. That said, Lloyds’ payout rose at a higher rate last year (15% dividend per share growth).
I also preferred HSBC’s increasing exposure to the growth markets of Asia and the Middle East, particularly in wealth management. These include India, China, Hong Kong, and Singapore.
In September, the lender opened its first Middle East wealth centre in the UAE (Dubai) to support its growing high-net-worth client list. As Mohamed Al Marzooqi, HSBC’s UAE Chief Executive, pointed out: “[T]he UAE has become the world’s top destination for wealthy investors and entrepreneurs, attracting more net inflows of millionaires than any other country in the world.“
HSBC has also opened wealth centres in China, Hong Kong, Taiwan, the UK, Malaysia, and Mexico. This global reach appeals to me as an investor.
In contrast, Lloyds is focused almost entirely on the UK economy. Nothing wrong with that, as we can see by the surging Lloyds share price. But the UK is seeing the opposite trend to the Middle East and Asia — the rich are packing up and leaving.
According to research from deVere Group, the number of wealthy people leaving the UK in 2026 could potentially double. That would follow 2025’s record outflow of millionaires.
deVere puts this exodus down to tax changes, the end of the non-dom regime, as well as concerns about overregulation and economic stagnation.
Of course, a fragile economy poses risks for Lloyds’ growth over the long term. Once the boost from higher interest rates subsides, it needs a thriving domestic economy to do well. Sadly, that doesn’t seem likely anytime soon, with just 0.1% GDP growth in Q4.
What about today?
There’s not much between the stocks today when it comes to valuation. But HSBC’s forecast yield is still higher (just) at 4.4% versus Lloyds’ 4.2%.
While Asia and the Middle East clearly offer more growth potential, there’s also a lot of competition for those wealthy clients. President Trump’s on-off tariffs also muddy the water for Asian exporters.
I understand why some investors prefer Lloyds. It’s familiar, well run, and at the heart of the UK economy. For me, though, I think HSBC is worth considering above Lloyds due to its superior long-term growth potential.
