Anticipated Developments in HSBC Stock by 2025
HSBC's stock (NYSE: HSBC) has been on a roll this year, soaring by around 11% since January. This growth trajectory is impressive when compared to its rivals, such as Barclays (NYSE: BCS), which has seen a 15% increase, and JP Morgan (NYSE: JPM) with a 9% climb over the same period. But what's behind HSBC's performance, and what trends are expected to shape its stock's direction in 2025?
HSBC's financial health has been commendable, showing a robust performance. In 2024, the bank reported pre-tax profits of $32.3 billion, marking a 6% year-over-year increase. Interestingly, while 2023's elevated interest rates allowed HSBC to earn more on its massive deposit base, banking net interest income has been on a downward trend as rates ease. Despite the U.S. Federal Reserve's indication of a slower pace of rate cuts in 2025, HSBC might encounter some pressure. The bank predicts banking net interest income to hover around $42 billion in 2025, representing a 4% decrease compared to 2024.
HSBC's growth strategy revolves around fee-based products in sectors like Wealth and Personal Banking. In 2024, the wealth business revenue saw a 18% increase on a constant currency basis, with the Asian segment jumping by 32%. The Global Private Banking division also performed well, fueled by robust brokerage and trading activity in Asia. The Asset Management segment also gained traction due to growing assets under management, favorable market movements, and elevated life insurance-related income. Moreover, increasing market volatility is expected to benefit HSBC's wealth division as more individuals seek advisory services, while brokerage and trading sectors are likely to benefit too.
Is HSBC Stock a Smart Investment?
HSBC is one of the rare stocks that has posted gains in each of the past 4 years, although it hasn't consistently outperformed the market. Its returns have included 21% in 2021, 8% in 2022, 39% in 2023, and 34% in 2024. While the Trefis High-Quality Portfolio, consisting of 30 stocks, has less volatility and outperformed the S&P 500 over the last 4 years, why hasn't HSBC managed to consistently outperform the market?
HSBC might face some challenges in 2025, such as potential rate cuts and multiple conflicts, that could push it into a similar scenario as it experienced in 2021 and underperform the S&P. However, there are compelling reasons to be optimistic about HSBC. First, its valuation looks reasonable, with the stock trading at around 1x tangible book value. Furthermore, the bank is focused on cutting costs and aiming for annualized savings of $1.5 billion by 2026. In January, HSBC announced plans to scale back some of its European and American operations, shifting its focus to high-growth markets like Asia.
HSBC has also announced a $2 billion share repurchase plan, expected to be completed by the end of Q1 2025, potentially boosting its stock price. Additionally, the bank is targeting a mid-teens return on average tangible equity between 2025 and 2027, surpassing industry averages. Although the wealth division currently represents only about 11% of HSBC's revenue, it's an area with significant growth potential. On the other hand, HSBC's core net interest income remains under pressure, contributing approximately half of the bank's overall revenue.
In summary, HSBC's stock performance in 2025 will largely depend on its strategic initiatives, market conditions, and economic trends in key markets.
HSBC's 2024 revenue from fee-based products in sectors like Wealth and Personal Banking showed a significant increase, with the wealth business revenue rising by 18% on a constant currency basis. Despite the bank predicting a 4% decrease in banking net interest income in 2025 due to potential rate cuts, HSBC's valuation remains reasonable with the stock trading at around 1x tangible book value. In an attempt to boost its stock price, HSBC has announced a $2 billion share repurchase plan, scheduled to be completed by the end of Q1 2025.
