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Why I’d consider buying HSBC shares in August

Shares in bank HSBC Holdings (LSE: HSBA) have been sluggish so far in 2019. While much of the market has been mostly racing up after a terrible end to 2018, HSBC has only managed to chalk up share price growth of 3% so far this year.

But August may provide some fuel for the share price after strong results from a rival and HSBC due to release interim results this week.  

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Banking on the East

The first-quarter results from the group had shown profit up by almost a third as revenue increased and costs fell. Pre-tax profit for the three months to the end of March increased 31% to $6.2bn as revenue rose 5% to $14.4bn. Operating expenses fell 12% to $8.2bn.

The 2019 interim results will need to show progress being made on growing market share in developing markets such as China, where HSBC has history. The 2018 interim results showed Asia was the region powering profit growth. Profits grew by over 87% in Asia compared to 0.4% in North America and 1% in Europe. Better performance in developed markets alongside repeated strong growth in Asia should help propel the struggling share price.

Showing the way

Rival Asia-focused bank Standard Chartered (LSE: STAN) provides hope that HSBC can deliver. Its half-year results published last week showed underlying profit before tax rose 11% to $2.6bn. A fall in bad loans, as well as more borrowing, helped the bank to post those better results. There’s little reason to think HSBC can’t replicate this success.

On the day of the results, Standard Chartered’s share price rose by 3.31%, while the FTSE 100 overall barely budged, indicating investors were happy with the performance. Given Standard Chartered has a much higher P/E than HSBC, I’d expect that if there’s good news from the latter in the coming days, it’s share price bounce would be even bigger.

With HSBC looking cheap on a P/E of just under 13 and providing investors with a generous yield of 5.9%, August could be a good month for the share price. Certainly, longer term, the trend for banking services in developing economies such as China looks strong with growing and affluent populations. So the bank should continue to do well and I believe it can outperform, despite its poor share price performance to date in 2019.

The caveat

The big danger for a bank so heavily focused on China is the potential for a return of concerns over a US-China trade war, which would hit HSBC disproportionately hard. The latest cause for concern came only on Friday, with the US announcing a 10% tariff will be imposed on $300bn of Chinese imports from the start of September. The news sent shares in many companies down. While concerns such as this might affect the bank’s share price in August, longer term, the conditions look good for HSBC and this is why I’d consider buying it this month.

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Andy Ross owns shares in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings and Standard Chartered. 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.