FTSE 100

Where next for the HSBC share price?

Can the HSBC (LON: HSBA) share price deliver improving returns?

The performance of the HSBC (LON: HSBA) share price has been relatively disappointing over the past year. It has increased by 7%, which is below the 11% recorded by the FTSE 100 index (INDEXFTSE: UKX) over the same period.

In the short run, there may be a lack of obvious catalysts to push the HSBC share price significantly higher. The emergence of a new Covid-19 variant means that the near-term outlook for the world economy could be less upbeat than was the case even a few weeks ago. This may impact negatively on demand for products across the wider banking sector and could act as a drag on growth rates within the industry.

In addition, a more challenging and uncertain outlook for the world economy could mean that central banks adopt a less hawkish stance than was previously envisaged by investors. This could translate into lower interest rates for longer, in spite of higher inflation, that provides banks with less scope to generate higher profitability.

Of course, it could be argued that these risks are already factored into HSBC’s share price. It currently trades on a forward price-earnings ratio of around 10. And, over the next two financial years it is currently forecast to deliver an annualised rise in earnings per share of around 7%. As such, it could offer good value for money relative to a number of more richly valued FTSE 100 shares.

In addition, HSBC currently yields just over 4%. That’s around 70 basis points higher than the FTSE 100 index’s yield. The bank’s shareholder payouts are expected to be covered almost 2.5 times by earnings in the current financial year. In an era of lower interest rates, it could hold income investing appeal – especially if it is able to pass rising profits through to investors in the form of higher dividends.

As such, the outlook for the firm’s share price could be relatively positive over the long run. Its latest results highlighted a relatively solid performance amid mixed market conditions. Although upcoming releases may be more volatile depending on the outlook for the wider banking sector and world economy, the long-term share price prospects for HSBC could be upbeat based on improving operating conditions and its relatively wide margin of safety.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.