When could HSBC shares recover the pandemic-driven losses?
Banks' shares have suffered heavy falls during the pandemic, but HSBC's global reach may provide the springboard for quicker growth than its rivals.
There are no reasons to anticipate a short-term turnaround in the value of the HSBC share price, nor for any other bank's shares. The pandemic has destabilised the global economic system, so there is little positive sentiment among investors regarding the immediate future of banks.
The HSBC share price closed trading on Friday 17 April at 414.35p, a significant drop in value compared to the close of £5.90 on 17 February. In two months, the HSBC share price shed around 30% of its value.
The picture gets bleaker when extended to 17 April 2019, with the HSBC share price around 38% skinnier on the equivalent date in 2020.
While HSBC shares made a 16% gain in a two week spell in mid-March, that progress has since been undone. April falls were in part provoked by the decision of UK banks to suspend dividends for the year, the culmination of a challenging period for HSBC.
The suspension of dividends may have driven down the HSBC share price, but Goldman Sachs retained the bank's 'buy' rating at the end of March. A target price of £7.45 is predicated on minimal disruption in the crucial Hong Kong and China markets.
The HSBC share price opened trading around the 409p mark on 21 April, leaving 82% of growth required in order to reach that target.
Reliance on Asian markets for profits leaves HSBC in a unique position among UK banks
The spread of Covid-19 has undermined HSBC's plans to undergo a comprehensive restructuring. This plan was announced in mid-February by Noel Quinn, the then-interim chief executive officer (CEO) who was given the job on a permanent basis in March.
The crux of the restructuring is to maximise HSBC's profits in Asian markets, cutting $100 billion of risk-weighted assets in the US and the UK by 2022. That money would then be reinvested to establish a stronger HSBC presence in key markets in the Middle East and Asia.
That restructuring has unsurprisingly been downgraded from a top priority as the pandemic has developed.
While there have been some staffing changes, including the departure of Andre Cronje as chief operating officer (COO) of HSBC's global markets businesses, most job cuts and asset redistribution will be postponed until more propitious times.
HSBC currently relies on business in Hong Kong and China for the vast majority of the company's revenues. This could be a double-edged sword.
If these regions lag behind the UK in overcoming the coronavirus threat, then HSBC is likely to struggle to match the pace of other UK banks in share price growth.
Conversely, exposure in areas that could flatten the coronavirus curve sooner than the UK may give the HSBC share price an edge over other banks.
As UK lockdown measures are extended, circumstances may be changing in other key regions
On 8 April, a 76-day lockdown came to an end in Wuhan, news which could indicate that the economy of China and its neighbours may be further along the road to recovery than European markets. Yet the possibility of further waves of coronavirus means that HSBC should be prepared for more disruption to their business.
On 16 April, the UK government announced an extension to existing lockdown measures by at least three weeks. Even when lockdown measures are relaxed, it will not be as part of a wholesale return to normal life.
Speaking on the BBC on 20 April, the culture secretary stated that 'the PM [prime minister] is very concerned about a second peak if we lift the restrictions too soon'.
HSBC's exposure in regions that could lift restrictions first may give the bank the platform to outperform the FTSE 100. This could leave HSBC in a more robust position as the global economy rebuilds following the pandemic.
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