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HSBC (LSE:HSBA) Shares rose this week after the company reported rising earnings for the latest quarter. The Asia-focused bank reported pre-tax earnings of $5.2 billion. That’s a big increase of $2.7 billion, and above the company’s compiled average of $4.96 billion.
So let’s take a closer look at this. FTSE 100 loyal. Would it have been a good buy three years ago and where will it go now?
average returns
Over three years, HSBC has risen 15%. So that’s a 5% annualized return. That’s not bad, but it’s nothing special.
So if you had invested £200 in HSBC shares three years ago, you would have £230 worth of shares today, plus dividends. The dividend would have been worth around an additional £25.
All in all, I wouldn’t be too unhappy with this comeback. After all, I’m not a greedy investor, and HSBC offers some degree of security through its diverse geographies and wide range of activities.
performance improves
Most of these share price gains have come in the last three months: shares are up 33%. That’s really quite a profit for a company worth £126bn.
So what’s behind these stock price gains? Well, for starters, we can see an improvement in macroeconomic indicators and positive events for HSBC.
One of these was the reopening of China after years of strict Covid restrictions. The Chinese economy is forecast to grow 5.2% in 2023, and that’s positive for cyclical stocks – these are companies that tend to perform in line with the economy.
We can also see an improvement in the macroeconomic environment in Europe. It appears that the forecast recession in the UK will be shallower than originally anticipated, despite the high interest rate environment.
The recent rally extended after a well-received earnings report earlier this week. HSBC said quarterly profit nearly doubled, boosted by rising global interest rates.
However, full-year profit fell to $17.5 billion from $18.9 billion. This was largely due to a $2.4 billion charge from the sale of its French retail banking operations.
HSBC is also in the process of selling its Canadian business. The bank said it intended to use the proceeds to reward its shareholders once the deal is complete. Stocks rose on this news.
What am I doing?
Well, I am already a shareholder in HSBC, but I will buy more shares when I have the funds available. Although in general I am concerned that bull runs could turn around quickly when investor sentiment changes.
Generally speaking, I see banks as an attractive place to invest at the moment. Valuations are low: HSBC trades with a price-earnings ratio of 10, net interest margins are strong and returns are above the index average.
Central bank rates also seem likely to stay higher for longer, with inflation proving sticky and economies proving more resilient to higher borrowing costs.
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