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5 Reasons Why UK Woes Make Me Turn To HSBC Holdings plc

HSBC (LSE: HSBA) (NYSE: HBC.US) is a stock that I think has a vast amount of potential.

Indeed, this potential stared me right in the face recently, when I was reading about further woes for the UK economy.

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Although UK GDP and other headline figures seem to be picking up and are pointing to a recovery (of sorts), the situation on the ground seems to be as dire as ever, with David Cameron’s ‘favourite’ think-tank recently saying that Britain should abandon its focus on regenerating high street shopping.

The Policy Exchange think-tank claims that Britain should focus on the regeneration of town centres via housing rather than shopping, with the decline in high streets being inevitable unless a different direction is sought.

So, things seem to be tough and, according to the aforementioned think-tank, look set to get even worse unless something is done to improve things.

However, the great thing about HSBC is that it is not at all focused on the UK economy. The state of high streets, house prices, housing activity, GDP data and whatever else have little bearing on its success.

Rather, it is focused on emerging markets, especially the Far East, and so is able to tap into far higher growth rates than more UK-focused banks such as Lloyds and RBS. This favourable exposure is the first of five key reasons why I’m thinking of adding to my holding in HSBC.

Reason number two is management strategy. A focus on cost-cutting and improving the efficiency of the business has enabled the bank to reduce operating costs considerably in recent years. Further cost reductions are being targeted over the next few years.

The third reason is valuation: shares are very cheap. They currently trade on a price-to-earnings (P/E) ratio of just 14.8, which compares favourably to the FTSE 100 on a P/E of 15 and also to the wider banking sector, which has a P/E of 17.

Fourthly, HSBC offers a yield of 4.3%, although this is expected to rise to 5.4% in 2014 as dividends per share increase by over 10% per annum over the next two years.

Finally (and most importantly in my view), such generous increases look set to be made possible by earnings per share growth forecasts of 36% next year and 7% the year after. Clearly, HSBC is a lot more than just a high-yielder.

Indeed, HSBC could be classed as a high-yielder or as a growth stock. For me. though, the growth is the really exciting part, with its attractive valuation, focus on faster growing markets and generous yield all being positives. too.

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> Peter owns shares in HSBC.

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