As HSBC share price unravels, is it a safe investment?
The HSBC (LON: HSBA) share price crashed by over 6% on Monday morning in Hong Kong amid rising contagion risks in the banking sector. It dropped to a low of H$50.4, the lowest point since January 5. It has dropped by over 17% from the highest point this year. In London, HSBA stock has plunged to 550p from the year-to-date high of 650p.
Contagion risks remainCopy link to section
HSBC stock joined other top banks in a major sell-off as investors assessed the implication of the collapse of Credit Suisse. The bank was acquired by UBS, the biggest Swiss bank with over $1 trillion in assets. As part of the deal, the Swiss government will provide UBS with $100 billion in liquidity and $9 billion to cover losses.
The deal came as Swiss authorities worked to prevent the collapse of the storeyed financial institution. According to the Wall Street Journal, Credit Suisse was losing over $10 billion in assets every day last week. And the regulators were concerned that they would be forced to wind the bank down, denting the Swiss economy. In a note, an analyst told Bloomberg:
“What is certain is that there will be ripple effect from the Credit Suisse deal to the bond and equity market and we don’t know yet how much exposure international and regional banks have.”
Therefore, HSBC share price is tanking as traders weigh the risks to the global banking sector. The stock is also falling as the market assesses the impact of the recent acquisition of Silicon Valley Bank (SVB) UK.
Still, I believe that HSBC is one of the best banks in the UK today. For one, the company has been evolving its business by exiting key slow-growth markets like France, Canada, and the United States.
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Also, the bank has a strong balance sheet, with a Common equity tier 1 (CET1) ratio of 14.2%, which is above its European peers. Further, the firm believes that its net interest income will come in at $36 billion this year while its return on tangible equity (RoTE) will be about 12%.
HSBC share price forecastCopy link to section
In my article on HSBC last week, I noted that the stock will continue falling after the SVB UK buyout. This prediction was accurate as the shares dropped to a low of 550p. It has dropped by over 17% from the highest level this month.
On the 4H chart, it has moved below the 25-day and 50-day exponential moving averages (EMA) while the Relative Strength Index (RSI) has moved close to the oversold level. Therefore, with the banking industry on edge, the bank will likely continue falling as sellers target the next key support at 500p.