FTSE starts busy week on front foot, HSBC beats forecasts

“The FTSE 100 started a new week in robust fashion on Monday despite a lukewarm reaction to better-than-expected results from index heavyweight HSBC,” says AJ Bell Investment Director Russ Mould.

“The mining sector is doing the heavy lifting, as it did at the end of last week. The coming days look busy as more of the UK’s big companies report on third quarter trading and Chancellor Rishi Sunak delivers his latest Budget.

“As we head into winter, Covid is starting to move back into the market’s consciousness amid concern about a rising number of infections in the UK – threatening the return of restrictions which could hit the travel and hospitality sectors in particular.”

HSBC

“So far the UK banks are doing a pretty good job of emulating the stellar performance of their American cousins earlier this month.

“Hot on the heels of better than expected third quarter numbers from Barclays and HSBC has also smashed forecasts.

“The company is even feeling sufficiently flush, having stored up more funds than it needed to withstand the pandemic, to return cash to shareholders through a big share buyback.

“However, really HSBC is benefiting from conditions not being quite as bad as expected and beneath the surface there are some more troubling signs in these numbers.

“The net interest margin, a key measure of banks’ profitability, is down suggesting HSBC is falling down somewhat on the basics of banking.

“Despite stripping out costs, HSBC now faces a considerable challenge from wage inflation given a wider environment of rising prices.

“The flipside of inflation is it may well lead to interest rates being hiked sooner rather than later which could help boost HSBC’s profit.

“HSBC also has exposure to a Chinese property market which is still awaiting with bated breath any fall-out as huge property developer Evergrande teeters on the brink.

“Despite these short-term issues its clear China, and Asia more generally, is still the prize HSBC is chasing, with money and resources thrown at the region and its wealth management arm an area of priority as it looks to tap into a burgeoning middle class.

“The company’s investment banking arm wasn’t quite the boon it had been to the US banks and Barclays with a focus on the debt markets meaning it missed out on its share of the global M&A bonanza.”

These articles are for information purposes only and are not a personal recommendation or advice.