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HSBC reaped the rewards when the emerging markets were roaring, and now the slowdown has set in it will be a different story. The first-half figures for the bank were actually quite good when you consider its exposure to the Far East, as group profits jumped by 10% and the Asian operation saw earnings rise by 19%.
Costs ticked higher due to the firm’s commitment to building up its compliance department, and the capital buffers have been strengthened – also ahead of tighter regulation. As I previously stated, the firm is considering relocating its headquarters from London, and Asia has been cited as a potential destination as regulation isn’t as stringent. Moving away from the UK will enhance the prospects of increased profitability.
Stuart Gulliver is sticking to his cost cutting plan and disposing of non-core assets, and the sale of the Brazilian business for approximately $1 billion higher than anticipated was a nice surprise. The boom times are over in Brazil and finishing on a high note is the right move for the finance house.
HSBC is already very exposed to emerging economies, and reducing its exposure now will stand to serve it well in the coming years. Asia accounted for nearly 70% of the group’s earnings in the first six months of the year, and the collapse in the Chinese stock market will be felt in the near future. HSBC’s share price is being put under pressure as it is over-reliant on the Far East, and the shake down in the Shanghai stock market will dent the banks’ profits.
When HSBC announces its third-quarter numbers, traders are anticipating revenue of £14.63 billion and adjusted net income of £3.65 billion, which compares with the second-quarter revenue and adjusted net income of £17 billion and £4.25 billion respectively. The bank will report its full-year numbers in February 2016, and traders are expecting revenue of £61.52 billion and adjusted net income of £15.45 billion. These estimates equate to a fractional drop in revenue and a 6.1% drop in adjusted net income.
Investment banks are bullish on HSBC, and out of the 38 ratings, 16 are buys, 20 are holds, and two are sells. The average target price is £6.04, which is 18% above the current market price. Equity analysts are even more bullish on Standard Chartered, and out of 36 recommendations, 14 are buys, 13 are holds, and six are sells. The average target price is £8.62, which is 17% above the current market price.
HSBC’s shares have been sliding since May 2013 and the trend looks set to continue. Support will be found at 481p and then 456p. If 535p is cleared the next level to watch will be 555p.