HSBC (LSE: HSBA) shares are having a good run at the moment. Over the last three months, the share price has risen about 20%. Meanwhile, over the last year, it’s up nearly 30%.
One of my top predictions for the FTSE 100 this year was that stocks in the financial sector would continue to do well on the back of the global economy recovery. With that in mind, should I buy HSBC shares for my portfolio today?
Why HSBC’s share price could keep rising
In the near term, the outlook for HSBC shares looks favourable, to my mind. For starters, economic conditions are quite strong right now and this is benefitting banks.
It’s worth noting that in the group’s recent results for the third quarter of 2021, management said: “While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us.”
One risk to monitor here however is China, which HSBC has significant exposure to. Its economy is struggling a little and economists are downgrading their GDP forecasts for 2022.
Secondly, we’re likely to see central banks raise interest rates this year. This should also support growth. Higher interest rates enable banks to generate a larger spread between their lending and borrowing rates. This typically leads to larger profits.
Third, the company is currently buying back its own shares. In its Q3 results, management announced a $2bn share repurchase programme. This should help boost earnings per share.
Finally, the valuation is still relatively low, despite the recent share price rise. Currently, analysts expect HSBC to post earnings of 71 cents per share for 2021. That gives the stock a P/E ratio of about 9.7 at present.
To put that in perspective, the median trailing P/E ratio across the FTSE 100 is currently about 18.6. This low valuation suggests to me there’s room for further upside in the near term.
Long-term growth potential?
What about the long-term potential here though? Is this a stock that can deliver strong gains for me over the next five to 10 years?
Well, I do like HSBC’s long-term strategy. One of its goals is to accelerate the shift of capital to areas such as Asia and wealth management, which generate high returns for the bank. It believes this shift will enable it to achieve mid-single-digit revenue growth in the medium to long term, with a higher proportion of revenue from fee and insurance income. This is a smart move, to my mind, given that interest rates could remain low on a relative basis for a while.
However, one key risk here is competition from financial technology (FinTech) businesses. The FinTech industry is growing at a phenomenal rate right now, and many small companies are capturing market share from the traditional banks. Revolut, PayPal, and Wise, are some examples of companies that are stealing business from the banks.
I personally believe that the banking industry is going to look very different in a decade’s time, so there’s a bit of uncertainty in terms of the long-term outlook, in my view.
My move now
Given this risk, I’m going to leave HSBC shares on my watchlist for now. I think the stock has the potential to keep rising in the near term. However, as a long-term investor, I think there are better stocks to buy right now.
Edward Sheldon owns PayPal Holdings. The Motley Fool UK has recommended HSBC Holdings and PayPal 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.
