HSBC’s stock (NYSE: HSBC) fared well over the last year, rising by about 33% since the start of 2024, versus a gain of about 22% on the S&P 500. This compares to rival Barclays (NYSE: BCS) stock which has gained almost 76% over the same period and JP Morgan (NYSE: JPM) which remains up by about 50% over the same period. So what are some of the trends that will drive HSBC stock in 2025?
Wealth And Fee Revenues Could Drive Growth
HSBC’s financials have remained reasonably strong in recent quarters. In Q3 2024, pre-tax profits rose to $8.5 billion, up about 6% from the previous year, while HSBC revenues increased 5% year-over-year to $17 billion. The company benefited from growth in its wealth business and stronger performance in trading and market-related segments, particularly in currency, stock, and bond markets. However, lower interest rates have posed challenges. Net interest income for Q3 2024 fell to $7.6 billion, down about $1.6 billion from the prior year, partly due to business disposals. In contrast, elevated interest rates in 2023 enabled HSBC to earn more on its $1.7 trillion deposit base. Although the U.S. Federal Reserve, which typically sets the tone for interest rates globally, has signaled a slower pace of rate cuts for 2025, HSBC is still likely to face pressure on interest income, given that it contributes about half of its revenues.
HSBC is increasingly relying on fee-based products in segments such as its Wealth and Personal Banking division to drive growth. In Q3, wealth fees and other income were up by 32% year-over-year on a constant currency basis. The Global Private Banking segment performed well, driven by strong brokerage and trading activity in Asia. Asset management revenues also trended higher led by growing assets under management, and positive market movements, and increased life insurance-related revenue. Rising market volatility could also help the wealth business to an extent as people increasingly seek out advisory services, while brokerage and trading businesses also likely benefit.
Is HSBC Stock Attractive?
HSBC is one of a handful of stocks that have increased their value in each of the last 4 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 21% in 2021, 8% in 2022, 39% in 2023, and 34% in 2024. The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could HSBC face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?
We remain positive on HSBC stock with a $52 price estimate, which is slightly ahead of the current market price. There are a couple of factors for the optimism. Firstly, HSBC’s valuation is reasonable, with the stock trading at about 1x tangible book value (the company’s net assets, less goodwill). HSBC is also looking to cut costs and make its business more efficient. A few months ago, the bank announced plans to reorganize its business structure into four key business lines while streamlining its geographic divisions into eastern and western markets. HSBC has been doubling down on its capital return program. The company’s dividend yield stands at over 4% currently and the bank also announced a $3 billion share buyback over the last quarter, taking its total buyback amount announced over the first 9 months of 2024 to about $9 billion. This could also help to support the stock price. HSBC is also targeting a mid-teens return on average tangible equity for 2024 and 2025, which is ahead of the industry average. See our analysis of HSBC’s valuation for a closer look at what’s driving our valuation for HSBC stock.
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