HSBC (LSE: HSBA) shares are having a great run at the second. Over the final three months, the share price has risen about 20%. Meanwhile, over the final 12 months, it’s up practically 30%.
One of my prime predictions for the FTSE 100 this 12 months was that shares in the monetary sector would proceed to do properly on the again of the world financial system restoration. With that in thoughts, ought to I buy HSBC shares for my portfolio at this time?
Why HSBC’s share price might maintain rising
In the close to time period, the outlook for HSBC shares appears to be like beneficial, to my thoughts. For starters, financial circumstances are fairly sturdy proper now and this is benefitting banks.
It’s price noting that in the group’s current outcomes for the third quarter of 2021, administration mentioned: “While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us.”
One danger to watch right here nevertheless is China, which HSBC has vital publicity to. Its financial system is struggling just a little and economists are downgrading their GDP forecasts for 2022.
Secondly, we’re prone to see central banks increase rates of interest this 12 months. This also needs to assist development. Higher rates of interest allow banks to generate a bigger unfold between their lending and borrowing charges. This usually results in bigger income.
Third, the firm is at the moment shopping for again its personal shares. In its Q3 outcomes, administration introduced a $2bn share repurchase programme. This ought to assist enhance earnings per share.
Finally, the valuation is nonetheless comparatively low, regardless of the current share price rise. Currently, analysts anticipate HSBC to put up earnings of 71 cents per share for 2021. That offers the stock a P/E ratio of about 9.7 at current.
To put that in perspective, the median trailing P/E ratio throughout the FTSE 100 is at the moment about 18.6. This low valuation suggests to me there’s room for additional upside in the close to time period.
Long-term development potential?
What about the long-term potential right here although? Is this a stock that may ship sturdy positive aspects for me over the subsequent 5 to 10 years?
Well, I do like HSBC’s long-term technique. One of its targets is to speed up the shift of capital to areas corresponding to Asia and wealth administration, which generate excessive returns for the financial institution. It believes this shift will allow it to realize mid-single-digit income development in the medium to long run, with the next proportion of income from payment and insurance coverage revenue. This is a wise transfer, to my thoughts, provided that rates of interest might stay low on a relative foundation for some time.
However, one key danger right here is competitors from monetary expertise (FinTech) companies. The FinTech business is rising at an outstanding fee proper now, and plenty of small firms are capturing market share from the conventional banks. Revolut, PayPal, and Wise, are some examples of firms which can be stealing enterprise from the banks.
I personally consider that the banking business is going to look very completely different in a decade’s time, so there’s a little bit of uncertainty when it comes to the long-term outlook, in my opinion.
My transfer now
Given this danger, I’m going to go away HSBC shares on my watchlist for now. I suppose the stock has the potential to maintain rising in the close to time period. However, as a long-term investor, I suppose there are higher shares to buy proper now.
Edward Sheldon owns PayPal Holdings. The Motley Fool UK has advisable HSBC Holdings and PayPal Holdings. Views expressed on the firms talked about on this article are these of the author and subsequently might differ from the official suggestions we make in our subscription companies corresponding to Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we consider that contemplating a various vary of insights makes us higher traders.