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Is buying HSBC shares a proxy for investing in China?

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If you ask the average person on a British street to name a Chinese company, Alibaba would probably be mentioned, but HSBC (LSE: HSBA)? Maybe not. Yes, it is technically a British company (listed on the London Stock Exchange), but its roots are squarely in China.

Actually, to be accurate, its roots are in Hong Kong, and it widely publishes this fact in all its material. That said, HSBC does have true fundamental links with Asia and China as well that make it a potential way for British shareholders to invest in the region.

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The roots run deep

Though a British company, HSBC’s Asian focus is undeniable. Indeed its name originates from the Hong Kong and Shanghai Banking Corporation, and its first branches were opened in Hong Kong in the 1860s. More important for modern investors is that a large portion of its business is based in the region.

The company’s latest results showed that almost 80% of its profits came from its Asia operations, while revenue from the region saw some of its best gains, up about 7% in the first half compared to H1 2018. Meanwhile HSBC has explicitly outlined growth in Asia and China as one of its major objectives, along with improving/turning around its US business, which has always been lacking.

This Chinese culture runs deeper than numbers however and previous CEO Stuart Gulliver once said he felt more at home in Hong Kong than in London. Despite the current US-Chinese trade tensions, all indications are that HSBC still sees its future very much linked with China.

Brexit-enforced links

The major issue facing many UK firms at the moment is Brexit. Banks in particular are likely to see new rules and regulations impacting their business, leading to speculation that there may be a mass exodus of the industry from The City.

Though denied by HSBC’s PR team, according to reports a senior executive has said the bank would consider being domiciled in Hong Kong as a gesture of goodwill to China. This is of course a far way off, but indicates once again how investing in HSBC shares is a proxy for investing in Chinese growth.

Of course, whether an investment in China itself is a good idea may be a different matter. Compared to the rapid pace of the last decade, Chinese growth has in fact been slowing in recent years, though compared to the rest of the world its GDP numbers are still impressive.

More recently, the political protests in Hong Kong and the ongoing feud between the US and China does mean the immediate future is a little less certain. HSBC alluded to this in its latest report, saying it faces “an increasingly complex and challenging global environment”.

Looking at HSBC, I do think it is a good way for British investors to buy into the Chinese market. The bank’s position in the region means its share price gets stronger as China gets stronger, but at the same time its size and diversity offers shareholders something of a safety net.

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Karl owns shares in HSBC Holdings. 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.

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