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The HSBC share price faces a major threat. Here’s what I’d do now

Harvey Jones
·3-min read
Conflict between USA and China, male fists - governments conflict concept
Conflict between USA and China, male fists - governments conflict concept

The HSBC Holdings (LSE: HSBA) share price has been recovering nicely, rising by a third in the last three months. It still has a long way to go to recover its losses from last year’s stock market crash, though. Measured over one year, it is down 30%.

Some investors might see this as an opportunity to buy another top FTSE 100 stock at a bargain price. The index is full of opportunities like this. I think pharmaceutical giant GlaxoSmithKline is one of them, but I’m worried that the HSBC share price could come under pressure in the months ahead, for political reasons.

The pandemic has been hard on the banking sector. The big banks have been hit by slowing economies, which hit activity and increase bad debts. Today’s near-zero interest rates have destroyed net lending margins. Lockdowns are dragging on, and on. The HSBC share price isn’t the only one falling.

FTSE 100 banks are a recovery play

Fellow FTSE 100 banks Barclays and Lloyds Banking Group are also well down on this time last year. However, the HSBC share price faces a particular headwind, whatever happens to Covid-19.

Corporate responsibility is a bigger issue than ever. Investors increasingly expect companies to have rigorous environmental, social and governance (ESG policies). What has largely been talk in the past, is now turning into action. This is a massive headache for HSBC and could threaten its share price, given the bank’s exposure to Hong Kong and China.

Last week, outgoing US secretary of state Mike Pompeo strongly criticised China over treatment of Uighur Muslims in Xinjiang. While President Joe Biden will reject much of the Trump administration’s legacy, he’s likely to agree on this point.

The HSBC share price is vulnerable

This ups the pressure on chief executive Noel Quinn, who tomorrow gives evidence to the Commons foreign affairs committee on the Hong Kong security law. He will be questioned on the bank’s decision to freeze the bank accounts of pro-democracy activists, including politician Ted Hui.

Quinn has previously countered criticisms by saying his bank has to comply with local laws wherever it operates. That may no longer be enough as Beijing takes a hard line and locks up activists. HSBC is walking a tightrope between its London listing and Chinese operations. Today, the HSBC share price trades at 18.58 times earnings. That suggests to me that the risk has not been priced in.

Last year, the Boohoo Group share price was hammered by allegations of worker exploitation in its supply chain. It has recovered as the company has cleaned up its act, but HSBC is in a much tougher position and there’s no easy solution. It’s caught between a very big rock in the US and a very hard place in China. The HSBC share price risks getting squeezed between the two.

That’s my opinion as it relates to my own portfolio, of course and I may be overdoing my concerns. There are still good reasons to hold HSBC, as it may reinstate its dividend once regulators allow. President Biden may take a less confrontational stance towards China than his predecessor. This is also the fourth biggest stock on the FTSE 100, and offers me exposure to faster growing parts of the world. For now, I’ll watch how the China issue plays out.

The post The HSBC share price faces a major threat. Here’s what I’d do now appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021