Although its shares are still down almost 27% in the last 12 months, HSBC (LSE:HSBA) has rebounded substantially from its lows. While the HSBC share price traded for as low as 283p in late September, they now trade for around 417p or almost 50% higher. Evidently, many investors are increasingly optimistic over the bank’s future.
Speaking of future events, here’s one big event that I think could be important for the HSBC share price.
The big event
The bank is expected to release its annual results on 23 February. I think the release could be important for several reasons.
First, I expect management to announce that they are paying a dividend again. British regulators are no longer against banks paying dividends now the worst of the pandemic is seemingly over. Fellow British bank Barclays also recently announced that it is paying a dividend again. If HSBC pays a dividend, I reckon it could help investor sentiment. Although HSBC’s initial dividend might not be anywhere close to what the dividend was before the pandemic, any dividend payment would be a good step in the right direction, in my view. HSBC’s past dividends were one key reason why many shareholders held the shares in the first place.
Second, I think the annual release could be important because management could provide guidance into the bank’s near-term future. Although HSBC faced numerous headwinds last year, the bank could benefit from several tailwinds this year. China’s economy has rebounded rather quickly and a Biden stimulus, if passed, would likely help the US regain full employment faster. If that happens, demand could rebound in many places where HSBC operates. If management were to provide optimistic guidance due to those potential tailwinds, I think the HSBC share price could potentially benefit. The bank itself remains fairly cheap, in my view, given its price-to-book ratio of around 0.62.
Third, I think the annual release could be important because management could provide more details on the bank’s restructuring program. Due to the pandemic, management paused much of its restructuring program that they had hoped would increase return on tangible equity. With the pandemic potentially being controllable in many parts of the West this year, I think management could continue the restructuring to make the bank arguably more lean and more Asia-focused.
What I’d do
Although I reckon the bank has tailwinds, I don’t know what will happen to the share price in the near term. Earnings results and management commentary can be unpredictable. Even good results might send stock prices lower because the results don’t meet expectations. The market’s real expectations can be difficult to predict.
Despite the uncertainty, however, I’d nevertheless buy HSBC shares. I like the bank’s Hong Kong business and China exposure. I also think the bank is still undervalued given its potential in Asia. Many Asian economies are growing faster than Western economies and many will need international banks to help them grow. If HSBC management makes the right decisions, I think the bank has a lot of profit growth ahead of it.
Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.