Will Q4 earnings trigger the already high HSBC share price?

The rising HSBC stock price has dipped ahead of the bank’s Q4 earnings announcement on 22 February, even though analysts forecast positive earnings and revenue growth off the back of higher interest rates and a global consumer recovery.

Along with the rest of the banking sector, the Hong Kong-listed UK bank HSBC [HSBA.L] share price has surged since the start of 2022, despite concerns over Hong Kong’s economic outlook due to China’s strict “zero-Covid” measures to contain the virus. A bulk of HSBC’s profit is generated in Hong Kong.

As the group prepares to announce its fourth-quarter (Q4) results on 22 February, investor sentiment appears optimistic about continued growth. Yet, the shares seem to have dipped in the run up.

HSBC is expected to report Q4 sales of $12.09bn according to analysts at Zacks, compared with $11.82bn this time last year. That means a year-over-year increase of 2.3%. Its annual profits are tipped by Shore Capital to come in at $19.2bn, up from $8.8bn this time last year.

From the close on 31 December 2021, the HSBC share price climbed 26.4% to 567.20p at the close on 11 February, helped by Chinese authorities cutting interest rates in January to stimulate faltering economic growth; the Bank of England increasing interest rates in early February; predictions the US Federal Reserve will also raise rates in March; and the potential easing of pandemic-related curbs.

The Bank of England hiked interest rates, first from 0.1% to 0.25% in December, then to 0.5% earlier this month.

However, the HSBC share price has since slipped to 544.40p at the close on 18 February, despite positive expectations about its annual performance.

Strong preceding quarter

HSBC recorded a strong Q3 performance. Pre-tax profits jumped 75.8% from the year-ago quarter to $5.4bn, helped by cost-cutting measures and a rollback of $700m set aside for loan losses during the pandemic. The result smashed analyst estimates of a 22.8% year-over-year hike in reported pre-tax profits to $3.78bn.

Revenues in the September quarter rose 0.7% year-over-year to $12bn, down on a forecast 3.1% rise to $12.3bn. The bank blamed low interest rates around the globe. Basic earnings per share came in at $0.18, compared with $0.07 in the third quarter of 2020.

The HSBC share price nudged just 1.9% higher after the results announcement on 25 October 2021.

Noel Quinn, group chief executive, was bullish about the bank’s future prospects, declaring: “We believe that the lows of recent quarters are behind us”, and the revenue outlook is becoming “more positive”.

However, the bank acknowledged in its earnings statement that “diplomatic tensions” between China and the US, UK and other countries might create “regulatory, reputational and market risks”.

HSBC stock’s growth potential

The HSBC share price was in the doldrums in 2020 after it was hit by investor concerns over its lacklustre response to new security laws in Hong Kong. It revived in 2021 as fears over the pandemic retreated and rising inflation signalled the need for interest rate increases. As of 18 February, the HSBC ticker had increased by 34.7% over the previous 12 months. In comparison, peers such as Lloyds Banking Group [LLOY.L] and Barclays [BARC.L] recorded a 36% and 31.8% gain, respectively.

Economic recovery could boost HSBC

With Q4 earnings about to land, general market sentiment indicates HSBC’s performance will get a boost as restrictions ease and global trade volumes pick up, alongside rising interest rates. Consumers feeling confident of mortgage and loan demand in the post-pandemic economy, while savings rates may also rise, driven by higher interest rates.

Like Q3 the December quarter may also see an earnings jump on account of fewer Covid bad debt provisions and cost-cutting measures, such as reducing the numbers of private bank employees.

The consensus rating for the HSBC stock price is ‘outperform’, according to MarketScreener. Exane BNP Paribas has a 650p price target, since HSBC has a bigger exposure to US interest rate rises than other European banks.

Seeking Alpha holds an opposing view. It has reduced HSBC to ‘hold’ from ‘buy’, citing worries over the strength of the Hong Kong economy and doubts over how far it can grow its loan book in a higher inflation and interest rate world.