Like most bank shares, HSBC (LSE: HSBA) has taken a beating in 2020. Year to date, HSBC shares have fallen from 590p to 330p. That represents a decline of about 44%.
Naturally, this kind of share price fall is attracting value hunters. Tempted to buy HSBC shares? Here are some things you should know.
The first thing to be aware of is that HSBC faces a high level of geopolitical risk right now. This is because, as a global bank that has a strong focus on Asia, it’s caught in the middle of the US-China face-off. “Current tensions between China and the US inevitably create challenging situations for an organisation with HSBC’s footprint,” said CEO Noel Quinn in the group’s recent half-year results. This adds uncertainty in the near term.
Secondly, it’s worth noting that the bank is going to take a big hit from Covid-19. In its half-year results, HSBC said that it has seen a “material increase” in expected credit losses and other credit impairment charges (ECL), as well as a reduction in revenue due to lower transaction volumes and reduced client activity. It anticipates that ECL charges for 2020 will be in the region of $8bn to $13bn.
Low interest rates
Low interest rates are also hindering the bank’s performance. HSBC recently advised that interest rates fell in the majority of its key markets and are expected to remain at lower levels for the foreseeable future. This is going to adversely impact its net interest income going forward and HSBC shares too.
It’s also worth highlighting the fact that HSBC’s dividend has been suspended for now. It was suspended earlier in the year after the Bank of England ordered UK banks not to pay dividends throughout the Covid-19 crisis. HSBC has said that dividends will be suspended until the end of 2020. It also recently advised that it is reviewing its future dividend policy. So, it’s hard to know what level of dividend investors can expect in the future.
Investors should also not ignore the threat of financial technology (FinTech) here. The FinTech industry is advancing at a frightening speed at present. Whether it’s digital banks such as Monzo and Revolut, payments companies such as PayPal, or FX companies such as TransferWise, FinTech companies are looking to capture market share. This adds risk to the investment case for HSBC shares, in my opinion.
Buffett has been selling bank shares
Finally, it’s worth pointing out that Warren Buffett has been offloading bank shares recently. He did add to his position in Bank of America, however, he reduced his positions in JP Morgan, Wells Fargo and PNC. He also dumped his entire stake in Goldman Sachs. That’s something to keep in mind if you’re tempted by the low price of HSBC shares.
HSBC shares: Foolish takeaway
Overall, there are quite a few issues to be aware of with HSBC shares. The company faces plenty of challenges right now.
My own view is that the stock is best left alone for now. All things considered, I think there are better stocks to buy.
Edward Sheldon owns shares in PayPal. The Motley Fool UK owns shares of and has recommended PayPal Holdings. The Motley Fool UK has recommended HSBC Holdings and recommends the following options: long January 2022 $75 calls on PayPal 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.