Buy Or Fear HSBC Stock?

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📝 usncan Note: Buy Or Fear HSBC Stock?

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HSBC’s stock (NYSE: HSBC) has performed quite well this year, increasing by approximately 33% since the beginning of January. This is in contrast to its competitor JP Morgan (NYSE: JPM), which is up roughly 25% in the same timeframe. HSBC’s Q2 2025 results presented a mixed yet robust scenario, with pre-tax profit recorded at $6.33 billion, a 29% decline year-over-year attributed to impairment charges on the Bank of Communications, higher expected credit losses (ECL), and escalating expenses. Revenue reached $16.47 billion, slightly lower than the previous year. So, why is the stock performing so admirably?

HSBC’s growth is bolstered by substantial advances in wealth management and fee-driven operations, especially in Asia, where revenues from brokerage, trading, asset management, and insurance have thrived due to market fluctuations. Income from trading activities has remained stable across foreign exchange, debt, and equity markets. Efficiency initiatives, which include the reorganization of business segments and geographic areas, are set to yield $1.5 billion in annual savings by 2026, with an estimated $300 million in cost reductions for 2025. The bank’s strategic shift towards profitable Asian markets, while scaling back lower-return activities in Europe and the Americas, is anticipated to enhance returns.

HSBC is introducing new wealth products and promotions, accompanied by incentives for new client inflows, to attract high-net-worth clients. In Q2 2025, wealth-related income surged 22% compared to the prior year, driven by client acquisition and increased activity in Hong Kong and India. Additionally, market leadership is indeed one of the metrics we factor in when developing the market-beating Trefis High Quality portfolio (HQ) – a strategy consisting of 30 stocks that aims for long-term value enhancement. HQ has surpassed the S&P 500 and generated returns above 91% since its inception.

The valuation of HSBC stock remains attractive, as it trades at around 1.2 times tangible book value. Additionally, HSBC is increasing its capital returns, unveiling a $3 billion buyback in Q2 2025, and offering a dividend yield exceeding 4%. These substantial returns are supported by strong capital ratios, with a CET1 ratio of 14.6% — a crucial regulatory benchmark of core equity capital against risk-weighted assets, signaling the bank’s robust capacity to absorb losses. HSBC is also targeting mid-teens returns on tangible equity through 2025-2027, which could enhance long-term shareholder value. Nonetheless, external risks linger. U.S. tariffs could negatively impact global trade and reduce loan demand for HSBC, which has historically been more reliant on global trade compared to its rivals.

That said, HSBC’s $1.7 trillion deposit base, strong client relationships, and solid capital position should help mitigate the effects. On the earnings front, HSBC’s core net interest income (NII) may face some challenges if the Fed lowers rates in September. The bank derives approximately half its revenue from net interest income, and with its extensive U.S. dollar balance sheet, rate cuts would likely translate almost directly into diminished lending margins. Check our analysis of HSBC’s valuation for more insights into what is influencing HSBC stock.

The Trefis High Quality (HQ) Portfolio, featuring a group of 30 stocks, has a history of comfortably exceeding its benchmark, which includes all three indices: S&P 500, Russell, and S&P Midcap. What accounts for this? Collectively, HQ Portfolio stocks have delivered superior returns with less risk compared to the benchmark indices; a smoother experience overall, as demonstrated in HQ Portfolio performance metrics.