HSBC and why what happens next is so important for all markets

The next few days bring a flood of news for investors, with US and UK central bank decisions, the Federal Reserve chair announcement due, US employment data on Friday and the first charges expected from Robert Mueller’s probe into Russian interference in the 2016 US Presidential election – not to mention events in Catalonia.

Investors will be forgiven for potentially hunkering down and playing a waiting game to see which way markets react to all the news.

It is a huge week for central banks, with the Bank of England likely to raise rates for the first time in a decade, and Donald Trump scheduled to announce his new pick for Federal Reserve chair, overshadowing the Fed rate decision on Wednesday, which is expected to remain neutral for now.

With the tsunami of liquidity from global quantitative easing and low interest rates having underpinned valuations since the financial crisis, what happens next is of huge importance for currencies, equities and the bond market – leaving no investor immune to the impact.

HSBC (HSBA) is the final one of the big four UK-listed banks to announce its results and they are impressive.

Shifting to the East has reaped rewards for the bank, whose investors have been significantly rewarded over the past few months, even if today’s performance is relatively muted.

All but one of the UK banks has seen their share price rise significantly over the past year, with Barclays (BARC) the exception, as investors remain concerned about their past misdemeanours and investment banking profits.

Among the analysts, Jason Napier at UBS still rates high-yielding HSBC shares ‘neutral’ with 725p price target.

“CET1 at 14.6% is in line with consensus and should underwrite expectations for further capital returns in 2018 (we have a $4 billion buyback in numbers) and decent yield,” he writes.

“The key question to grapple with is what multiple to pay for this safety and potential future growth: with adjusted revenues up 3% YoY and down 2% QoQ and margins flat/slightly down there’s isn’t much growth to speak of yet, at least.”

Elsewhere, Ian Gordon at Investec Securities is still not won over. “A decent quarter, but on a “punchy” 1.4x 2017e [tangible net asset value], ‘sell’ reiterated,” says the analyst, although he’s put his 640p price target under review.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.