HSBC share price: what to expect from 2018 results
HSBC is expected to report better earnings in 2018 as it continues to expand in its core Asian markets. We explain what to watch out for ahead of the annual results.
When is HSBC’s earnings date?
HSBC will announce its annual results for 2018 on Tuesday 19 February at 4am GMT.
HSBC results preview: what does the City expect?
The current focus is on chief executive officer (CEO) John Flint – who took over a year ago – and his plan to grow the bank while keeping a lid on costs. The CEO, formerly the bank’s global head of retail banking, is keen to expand HSBC’s presence in Asia, which already accounts for over three quarters of revenue, while simultaneously keeping costs down to improve margins.
This is expected to increase the bank’s return on equity (ROE) to 11% by 2020. Analysts forecast HSBC’s ROE will rise to 8.1% in 2018 from just 5.9% in 2017. The figure for the first nine months of 2018 was 9%.
Analysts anticipate HSBC to make progress across the board when it releases its 2018 annual results, with a company-compiled consensus forecasting higher revenue, profit and dividend as well as a stronger balance sheet:
HSBC 2018 annual results consensus expectations
|($, billions – unless stated)||2017||2018 consensus|
|Net operating income||49.76||54.59|
|Return on average shareholder equity (annualised) - %||5.90%||8.10%|
|Dividend||51 cents||52 cents|
|Net operating income||51.44||54.85|
|Capital and balance sheet|
|CET 1 ratio - %||14.50%||14.10%|
|Leverage ratio - %||5.60%||5.50%|
|Loans/advances to customers||962,964||994,000|
What to watch out for in HSBC’s 2018 annual results
With Flint having joined in February 2018 and chairman Mark Tucker following in October, investors will be keen to see how the pair will take the bank forward in what will be their first full year in charge. Here are six things to watch out for:
Revenue growth vs cost growth, or jaws
Growing revenue and limiting costs is key for HSBC at present. The relationship between revenue growth and cost growth is represented by ‘jaws’ – which is positive when revenue grows faster than costs and negative when costs increase faster than revenue. Although HSBC managed to report positive jaws for the third quarter (Q3) of 2018, the overall figure for the first nine months of the year remained in negative territory at -1.6%. However, HSBC said it 'remains on track to achieve positive adjusted jaws for the full year' when it released its latest results. The adjusted jaws figure is a key figure to watch.
Growth in Asia
Growing its existing operations in Asia is key to HSBC’s strategy. Figures to look out for include the amount of loans and advances made to Asian clients, which stood at $444 billion at the end of September - up 8.3% year-on-year (YoY), and the amount deposited by Asian customers, which stood at $652 billion at the end of Q3 - up 0.6% YoY. Hong Kong accounted for almost half of HSBC’s adjusted earnings in Q3 and saw revenue in the first nine months of the year jump 14.5% YoY. Also, look out for commentary on the impact of slower growth in the likes of China or the US-China trade war, both of which have cast doubt over its focus on expanding in Asia for some investors.
HSBC’s new CEO has made it clear that the bank is also keen on expanding into new markets outside of Asia. It has already flagged several opportunities in Latin America, which currently accounts for just 2% of earnings, in countries like Brazil (where it could restart its investment banking operations after exiting in 2015), Uruguay and Chile. Other nations like Saudi Arabia have also been mentioned.
HSBC is considered the least exposed to Brexit out of the Big Four banks listed in London because of its reliance on Asia. Although the bank has said it has seen a limited impact from growing Brexit uncertainty so far, it has admitted that anxiety is rising. As the last set of results before the 29 March Brexit deadline looms, investors would be wise to watch out for any further details on the impact of Brexit and how the bank intends to deal with it.
Global Markets division
HSBC’s Global Markets division is responsible for the bank’s trading in equities, bonds and currencies. It has been a tough year for the unit with revenue down 6% YoY over the first nine months of 2018, and there is widespread expectations that the unit will succumb the same fate as many major US banks did in late 2018, with the majority reporting double-digit declines in fixed-income trading. HSBC did promote Georges Elhedery as the new boss of the division, in late January, so investors will be keen to see if HSBC has any turnaround plans in the pipeline.
Mainland China listing
HSBC has admitted it is considering listing its shares in mainland China (it has a primary share listing on the UK's London Stock Exchange and branch listings on the Hong Kong Stock Exchange and Bermuda Stock Exchange. Its shares are also listed on Euronext Paris and on the New York Stock Exchange). This is expected to be facilitated through the Shanghai-London trading link that aims to open-up trading in London-listed shares to Chinese investors and vice versa. HSBC is the first firm to have shown interest, but nothing is confirmed as of yet.
HSBC share price analysis
HSBC shares have not been as hard-hit as its peers over the last year, partly down to its insulation from Brexit uncertainty that has impacted Lloyds, Royal Bank of Scotland (RBS) and Barclays to a heavier degree. However, HSBC shares have significantly underperformed that of its peers since the start of 2019, with markedly lower gains:
Banking shares: HSBC vs Lloyds vs RBS vs Barclays
|Year-to-date (YTD) 2019||Last 12 months|
|Lloyds Banking Group||13.8%||-13.6%|
|Royal Bank of Scotland||9.8%||-14.5%|
HSBC shares hit a near two-year low on 24 October 2018 – ahead of the Q3 results being released on 29 October - but have since risen 8.3%.
HSBC shares: technical analysis
HSBC remains in a longer-term descending triangle, with a series of lower highs seen since January 2019, however, barring an October dip below £6.00 per share, a firm hold on £6.30 has been maintained as a support level. Repeated attempts to break below this have failed, but the bearish pattern remains.
A push above £6.80 would break the trendline, but a close above £6.86 is needed to create a higher high. Renewed falls below £6.30 target £5.91 and £5.67.
On the hourly chart, the stock has essentially traded between £6.30 and £6.60, with arguably £6.55 forming the main area of resistance.
This range has been a profitable one for those looking to go both long and short, and for the moment it seems it will continue to prevail.
How to trade HSBC’s annual results
A Thomson Reuters poll of 22 analysts shows there is a long-term average hold rating (as of 8 February 2019). Analysts have moved their recommendations downward: three months ago there were more buy recommendations and zero analysts recommending strong sell.
HSBC shares: broker recommendations
|Recommendation||Number of brokers|
HSBC earnings: can management cement support for its strategy?
Having shown progress in Q3 of 2018, HSBC will be keen to demonstrate that its strategy under CEO Flint and chairman Tucker is gaining momentum to install confidence in the bank’s prospects for 2019, which will be the first full year under the leadership of new management.
The current focus is on expanding in Asia and new markets while keeping costs down. Growing revenue at a faster rate than costs is a key metric for investors at present. Progress on this front will help convince investors that HSBC is pursuing the right strategy and allay fears that it is focused on growth in Asia at a time when economies are slowing down and uncertainty is rising amid the US-China trade war.
The long-term broker rating for HSBC sits at hold, with just one more broker backing the upside potential in the bank’s shares than those backing the downside.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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