HSBC's loyal Hong Kong investors find redemption in 51% share rally

HONG KONG (BLOOMBERG) – Fear of owning HSBC Holdings shares is turning into a fear of missing out on a major rally.

Europe’s biggest lender is up 51 per cent in Hong Kong since touching its 25-year low in September, and is the best-performing stock on the Hang Seng Index this quarter. Just two months ago, investors were fretting over how mounting regulatory and economic pressures would squeeze the firm’s key businesses in Asia.

But a lot has changed since then. British regulators have signaled they would consider softening their stance on a dividend ban imposed on banks in March at the height of the pandemic. Also, HSBC recorded better-than-expected third quarter results on cost savings while investors have piled into financial stocks as part of a sector rotation.

Shares of HSBC rallied 3.7 per cent on Wednesday (Dec 2) in Hong Kong, while the Hang Seng fell 0.1 per cent. They gained 3 per cent in London.

“HSBC’s fortunes have improved with a US presidency change likely to ease trade and China-US tensions, as well as increasing cost savings expectations and a likely return to dividends in 2021,” said Jonathan Tyce, an analyst at Bloomberg Intelligence.

HSBC’s Hong Kong-listed stock has punched through several major resistance levels and is now trading above its 50-day, 100-day and 200-day moving averages. Its 14-day relative strength index is at 73, a level indicating the stock is in overbought territory.

China Plans

The gains come after a testing period for the bank in its crucial China market. HSBC shares in Hong Kong plunged to their weakest since 1995 in September after it was seen as a possible candidate for China’s “unreliable entity list” that aims to punish firms, organizations or individuals that damage national security. Chinese media blasted it over its role in the US investigation of Huawei Technologies. HSBC had also faced pressure to publicly endorse China’s new security law in Hong Kong.

But there are indications that the standoff with China may be easing. Last month, the Communist Party’s Global Times newspaper highlighted on Twitter comments from HSBC chairman Mark Tucker about the bank’s China expansion plans. China’s UK ambassador Liu Xiaoming quoted the tweet supporting the move.

Still, most analysts have yet to soften their stance on the bank’s outlook. Just this week, Deutsche Bank and Credit Suisse Group analysts reiterated negative ratings on the firm’s shares in London, according to data compiled by Bloomberg. Only six of the 31 analysts tracked by Bloomberg who follow HSBC recommend buying and 13 give it a sell.

On the other hand, Citigroup raised its price target for HSBC by 24 per cent late last month saying that it’s better positioned than other Hong Kong banks going into 2021 on stronger earnings recovery and an expected dividend restart. Goldman Sachs Group recommended a buy rating.

HSBC has some hurdles ahead, with the ongoing pandemic forcing the firm to step up cost-cutting plans to contain debt. The firm also mulled plans to offload its US consumer franchise.

Beyond the company’s strengthening outlook, the bank has also been a beneficiary of investors piling into bank stocks in a move widely attributed as sector rotation. Standard Chartered has gained about 41 per cent so far this quarter, while Industrial & Commercial Bank of China is up 27 per cent in Hong Kong.

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