Time is ticking away to use up your remaining 2018/2019 ISA allowance. There are just a few weeks left before the new tax year ends on 5 April, so now’s the time to start planning your contributions if you don’t want to run out of time.
With this in mind, today I’m looking at HSBC (LSE: HSBA) and examening why I believe this global banking champion could be the perfect buy for your ISA.
HSBC is one of the world’s largest banks with a global presence. Even though it does have an evident presence here in the UK (its global headquarters is located in London), the group generated 90% of profits in Asia last year. In my opinion, this latter exposure is HSBC’s most attractive quality.
Most economists believe that Asia’s economic growth is only just getting started and the region will continue to grow faster than the rest of the Western world over the next few decades.
Indeed, even though China’s GDP per capita has risen more than 10-fold over the past 19 years, at around $9,000, it’s still just a fraction of the GDP per capita of the United States ($60,000 in 2017). This implies that there’s still plenty of potential for growth. Not just in China, but across Asia as the rising tide lifts all boats. And HSBC is ideally positioned to benefit from this growth.
Pivot to Asia
When current chief executive John Flint took the helm in February 2018, he promised to boost the bank’s growth by accelerating its so-called “pivot to Asia,” a long-term plan to double down on HSBC’s Asian business and focus on growth in markets where it’s strongest.
The shift is already paying off. Last year, revenue and profit expanded substantially, thanks to a substantial increase in Asian business.
Net profits jumped 30% to $12.6bn, as loans and advances to customers in Asia growth 5.5% year-on-year. Unfortunately, loan growth was substantially lower than the double-digit increase reported for 2017 — a side effect of the increasingly frosty relations between China and the US, according to the bank’s management.
Still, I think this slowdown in growth is only temporary. Ultimately, I reckon the US and China will agree on some sort of trade deal because, as the economies in both countries start to splutter, policymakers are under increasing pressure to remove trade barriers.
An agreement would be fantastic news HSBC’s outlook and growth potential. But I don’t think this potential is currently reflected in HSBC’s current valuation of just 11 times forward earnings.
Slow and steady
HSBC’s long-term growth potential is the primary reason why I like the bank, although I don’t think I’d be as attracted to the business if it wasn’t one of the FTSE 100’s top income stocks.
The company has always prioritised cash returns to investors, and today the stock supports a dividend yield of 6.4%, substantially above the FTSE 100 average around 4.7%. With such a high level of income on offer, holding the shares within an ISA is, in my opinion, the most tax efficient way to hold the shares.
The bottom line
So overall, with its global exposure, growth potential and market-beating dividend yield, I think the HSBC share price deserves a place in your Stocks and Shares ISA.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.