HSBC Q2 Earnings Preview

HSBC's exposure to China helped it outperform over the last couple of years, but that could be turning on its head after Beijing’s rolling shutdowns.

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It's not always good to be the exception

HSBC doesn't stand to benefit from higher rates like other central banks, as China has been seeking to ease policy to help its struggling economy. That's one of the reasons why the consensus among analysts collected by the bank is for a 4% decline in Revenue this quarter. This is a far cry from the initial guidance from HSBC at the start of the year that there was 'good business momentum' and revenues would be higher.

Initially, HSBC acknowledged that there would be weak performance in its Wealth division, and that is likely to be a focal point for investors. Since then it has become clearer that the ongoing protests over mortgage payments, slow deliveries of new homes in China, and general reticence of Chinese people to take on new mortgages are likely to weigh on earnings. It now seems just a matter of how much HSBC will cut its earnings outlook.

Getting ready for the future

HSBC is expected to report earnings of $0.88 per share on $12.8B of revenue. There is a wide range among the estimates for the bottom line because they depend on how much the bank puts aside for provisions. The average of the analysts polled by HSBC shows that $762M is expected to be put aside, but some are estimated up to $1.0B.

Given the earnings stress, the question turns to what the bank does to keep costs under control. Banks aren't completely immune from inflation, either. After hiking the dividend last year, there is a considerable concern that a dividend cut is on the cards, or it might be eliminated completely.

HSBC stock prepares for breakout

The HSBC share price has been in a symmetrical triangle since the 450p March low. The June ‘21 resistance flipped to support there and the stock rose to its highest level since, at 555p, only to fall back to the 50-day SMA near 510p.

The textbooks says triangles comprise five waves and three are already complete. The prio uptrend would imply an upside breakout which if completed could see the stock surge to 565p and beyond, with a longer-term target of the ‘measured move’ from the triangle at around 630p.

Downside risk appears on the momentum oscillator, where its equivalent ascending trendline has broken and the indicator remains comfortably below 0. The 510p invalidation would expose 500p, and then the several swing lows printed off 450p up.

Source: Spreadex trading platform

Key Takeaways

The consensus around HSBC’s revenue has been lowered on the heels of Chinese expansionary policies as the bank has taken a hit on its wealth division. HSBC is expected to report earnings of $0.88 per share on $12.8B of revenue, with a wide range in various estimates due to various estimates for provisions. The bank is concerned with keeping costs under control and could be cutting dividends.