HSBC rallies almost 55% as outlook for UK banks improves

Kumutha Ramanathan
·Contributor
·2-min read
Commuters wearing masks wait at a tram station in front of HSBC headquarters in Hong Kong. Photo: Budrul Chukrut/SOPA/LightRocket via Getty
Commuters wearing masks wait at a tram station in front of HSBC headquarters in Hong Kong. Photo: Budrul Chukrut/SOPA/LightRocket via Getty

HSBC (0005.HK) shares have rallied almost 55% since late September in Hong Kong, making it the best-performing stock on the Hang Seng Index this quarter.

The stock has been gaining since 28 September, when it closed at $28.20 (£21.35). Shares closed at $43.40 on Thursday.

This is in stark contrast to Europe’s biggest lender’s trajectory in September, when it touched 25-year lows.

Shares rose as much as 3% on Thursday in Hong Kong, reaching an eight-month high.

The HSBC gains in Asia follow a difficult period in its China market. Shares reached their lowest point since 1995 in September after it was deemed a possible candidate for China’s “unreliable entity list” that punishes firms, organisations or individuals that threaten national security. This follows HSBC’s role in the US investigation of Huawei. The lender also faced pressure to publicly endorse China’s new security law in Hong Kong.

Tensions have since subsided. Last month, the Communist Party’s Global Times newspaper highlighted comments on Twitter from HSBC Chairman Mark Tucker about the bank’s China expansion plans, which its UK ambassador also supported on Twitter.

HSBC shares hit record highs, becoming the best performing stock on the Hang Seng this quarter. Chart: Yahoo Finance
HSBC shares hit record highs, becoming the best performing stock on the Hang Seng this quarter. Chart: Yahoo Finance

Deutsche Bank (LHA.DE) analysts recently upgraded their outlook for UK banks for next year, including Barclays (BARC.L), HSBC, Lloyds (LLOY.L), NatWest (NWG.L) and Standard Chartered (STAN.L). Still, the analysts said they face headwinds, including the cost of collecting on the impending wave of non-performing loans together with COVID-19 bounce back costs challenging potential efficiency gains for the sector as a whole.

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“A stronger – or less weak – economy would put less pressure on loan books and reduce write-downs, to help stated profits, added Russ Mould, AJ Bell Investment Director. “That would in turn would leave them with more room to pay dividend and perhaps persuade regulators to let them do so.

He added that expectations of an upturn in 2021 “mean that the threat of negative interest rates in the UK seems to be dissipating and if inflation does start to emerge then the yield curve could steepen, to further help lending margins and profits.”

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