Chinese market crash and HSBC

“European markets enjoyed a stronger start to the week, despite a sell-off in China as investors digested the impact of a trade war with the US on industrial earnings.

“China’s CSI 300 index fell 3% on Monday following National Bureau of Statistics data over the weekend which showed industrial profit growth in September had slowed to 4.1% year-on-year, down from 9.2% growth in the previous month. The index’s worst performer was Yanzhou Coal Mining, down 10% in a single day.

“In the UK, the FTSE 100 rose 0.5% in early trading to 6,975, led by positive market reaction to HSBC’s results, plus notable gains in the healthcare and insurance sectors.

“Among the small caps, makeup seller Warpaint London crashed 39% after issuing a profit warning linked to weakness in the UK with retailers reducing stock levels and Christmas orders.

“In mainland Europe, the German Dax index nudged up 0.4% to 11,270, with pharma group Merck and payments expert Wirecard leading the top movers,” says Russ Mould, investment director at AJ Bell.

HSBC

“Europe’s largest bank HSBC has put out an impressive set of third quarter numbers, with profit some 8% ahead of the consensus forecast.

“Costs were tightly controlled, and the company has made market share gains in its core Asian market. It is getting the basics of banking right, attracting a larger number of customer deposits in the period. The company’s investment banking arm is also performing better than several of its peers.

“HSBC’s scale and Asian bias means, unlike its more domestic-focused peers, it is also not at the mercy of Brexit or a competitive UK mortgage market.

“In the first half the company’s ‘jaws’ – comparing income to operating expenses growth trends – was negative as the company continued a programme of heavy investment under new chief executive John Flint.

“Reining back on spending a bit means the company is better positioned to fulfil its pledge to deliver positive jaws by the end of 2018. This is important as analysts had seen the negative jaws as a constraint on the performance on the shares.

“However, any scaling back of expenditure will need to be balanced with the need to make the necessary investments for future growth.”

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