FTSE 100 banking giants Lloyds (LSE: LLOY) and HSBC (LSE: HSBA) have something more in common right now than just that they are financial services providers. Both are being impacted by macro factors beyond their control. Lloyds of course, being UK-centric, continues to reel under Brexit-driven ambiguities. HSBC, with its far more globalised operations, might have been able to easily surf over these waves, but has still found itself caught up in the continued unrest in Hong Kong.
As 2019 heads towards its close and we move into 2020 with an unlikely resolution to either issue, I think there is one question worth asking. Will these banks be able to move past the geo-political and macro-economic hurdles to give good investor returns, and which of these two is a better bet for the growth investor?
Brexit woes, but much potential
First, let’s look at Lloyds. Not only is Brexit a party spoiler, 2019 presented its own set of challenges, a prime example being the ongoing PPI claims fiasco that has hit its bottom line. Considering how closely financials’ fortunes are linked to macro-economic conditions, middling growth in the UK means that the broader environment doesn’t guarantee support in the future either. In fact, it’s good to be prepared for the contrary. As the latest numbers from the Office for National Statistics showed, the UK has just narrowly escaped a full-blown recession.
Also, the long-term share price trends show that Lloyds has never risen back up to levels last seen during the great boom of the mid-2000s. I don’t think the next boom is going to make an appearance in a hurry, but if last time’s story is anything to go by, I think this share can give some great capital returns over a long enough time period, making it a good choice for the millennial investor.
Trending up, despite troubles
At any other time, international banking biggie HSBC would make a good hedge against the vulnerabilities that Lloyds is subjected to thanks to its wide exposure to the UK market. However, as pure luck (or lack of it) would have it, HSBC is impacted by the Hong Kong market and China’s important for it too. Hong Kong of course has seen widespread protests related to its governance following the handover to China, which has impacted its share price performance that has been trending downwards through the year.
Yet, comparatively, HSBC’s share price performance is better than Lloyds over a five-year period. Most interestingly, it still has a far lower price-to-earnings ratio (P/E) of 9x to Lloyds’ 22x. Things might change tomorrow, but for me right now the verdict between these two clearly is in HSBC’s favour. For investors keen on financials, I’d strongly consider buying it with a five-year horizon.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Lloyds Banking Group. 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.