FTSE 100 banking corporation HSBC (LSE: HSBA) has seen a share price drop of over 10% since the end of last month. While this is in line with the broader equity markets’ movements, I think it’s worthwhile to keep an eye on the politics impacting the bank’s big markets, the latest case in point being Hong Kong. It stepped in recently urging a peaceful resolution to the conflicts arising from the Chinese handover.
Hong Kong is already an important market for the bank, and as for many other global corporations, the fast-growing Chinese economy is significant too. I have been positive on it in the recent past, but with the latest developments, it’s worthwhile to explore where things stands and how the future looks.
Politics impacts plans
The latest half-year results showed that almost 80% of the corporation’s profits come from Asia. But in its latest results, it mentioned that the “outlook is less certain”. While it didn’t mention either Hong Kong or China explicitly in this August release, it did say “geopolitical issues could impact a significant number of our major markets”. This is worth noting as the Chinese market is among its strategic priorities.
These latest challenges add to the already existing Brexit uncertainty, which the corporation acknowledged in the release. The fact that the UK is among what it calls its “scale markets” puts a question mark on its expansion, in the short term at least. The bank doesn’t expect to meet its targets in the US for 2020 either. In a nutshell, HSBC is facing choppy weather across geographies, and the recent change of guard at the helm only adds to the ongoing imbalance, with the former CEO Noel Quinn having stepped down earlier this month.
A number of positives
I think these developments might understandably be enough to discourage a long-term investor from buying the share right now, except that in this case, it might be a good idea to “be greedy when others are fearful”, in the words of influential investor Warren Buffett. The share still has a lot going for it.
For one, take its 6% dividend yield, which is worth considering for income investors. Despite its diffident outlook, the latest results were also quite good. Revenue grew by 7.6% and profit after tax showed a 15.8% increase, while operating expenses declined. And these results are hardly just a flash in the pan as it has been consistently performing. The sheer scale of its operations, a point I have made earlier as well and would like to reiterate, also works in its favour, when compared to other banks like Lloyds and Barclays.
On balance, as a growth investor, I happen to like this share right now precisely because the price is attractive. Its troubles can’t be wished away, but given its size, history and performance, in my assessment the odds are more in its favour than against it.
