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Are HSBC shares worth buying?

Andy Ross
·3-min read
View of Canary Wharf
View of Canary Wharf

It’s recently been widely reported that shares in HSBC (LSE: HSBA) have hit the lowest price in a quarter of a century. That’s incredible when you consider that timeframe includes the global financial crash of 2008, which was a credit crisis.

HSBC shares hit by the pandemic

The shares of UK-listed banks have been hit very hard so far this year. HSBC is not alone in this. Investors fear a rise in bad loans as economic conditions worsen. This, in turn, is reducing demand for banking shares.

Given the increase in local lockdowns in the UK and globally, the pandemic is going to continue being the source of economic problems in the immediate future.

Central banks can ease the pressure by pumping money into the economy and governments can introduce measures like furlough schemes. At the end of the day though, bank share prices are still sliding, so this isn’t providing much respite for shareholders. All this has hit HSBC shares.

HSBC’s specific problems

On top of these general economic and industry problems, HSBC has to contend with being more squarely caught in the crossfire between the US and China. It’s a British- and Hong Kong-listed bank with a US presence and makes 90% of its profits in Asia.

Even though it has publicly supported China recently as regards Hong Kong, the threat still seems to loom over HSBC that it will be blacklisted by the Chinese authorities. This is because of its perceived help in having the Chinese Huawei executive, Meng Wanzhou, arrested.

All in all, even though HSBC shares have got much cheaper this year, I’d still stay well clear of them. I think there are many easier and less risky ways to make money from shares in the current market.

A better alternative, even if it is a bank

Indeed, Barclays (LSE: BARC) may be a better investment. Of course, its share price has fallen this year as well. It’s now on a trailing P/E of seven. There’s also pressure on CEO Jes Staley from an activist investor.

Putting that aside, from an investment perspective, Barclays has more appeal. It’s focusing more on investment banking, which has given it earnings a level of diversification. This diversification is something that Lloyds hasn’t got and it has suffered as a result.

Barclays, like other banks, could also receive a share price boost when they’re allowed to start paying dividends again. I think Barclays, which is in better shape, will be able to pay a more sustainable dividend than HSBC. That’s why I prefer the look of the shares.

The bank is well capitalised and I expect it to pull through this crisis. As a result, I fully anticipate it will deliver for shareholders in the coming years.

The post Are HSBC shares worth buying? appeared first on The Motley Fool UK.

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Andy Ross owns shares in HSBC Holdings and Lloyds Banking Group. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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 2020