Chinese tensions and pandemic fears hit stocks again, HSBC faces high-wire act

“It continues to look like the recovery from coronavirus will be a messier affair than the market hoped and stocks remain under pressure accordingly. The FTSE 100 follows a bad end to last week with a lacklustre start,” says AJ Bell Investment Director Russ Mould.

“Whether a growing rate of infections is a second wave or second spike in the pandemic or just a continuation of the first wave it is clear the virus is not going away and that is weighing on equities.

“Escalating tensions between the US and China, a theme of the last few years which has returned with a vengeance since the introduction of a new security law in Hong Kong, are just another factor leading investors to be more cautious.

“Amid diminishing risk appetite, safe haven asset gold remains close to its recent record high, with the $2,000 per ounce mark being eyed in some quarters.”

HSBC

“Portents of an economic storm are evident in the latest results from banking giant HSBC with the company following the industry-wide trend of making significant provisions for bad debt.

“It is no surprise to see these provisions lifted substantially year-on-year although notably the size of the sum set aside for loan losses still exceeded analysts’ expectations.

“Like its peers the company is facing knock-on effects from the economic fall-out associated with the Covid-19 pandemic and is suffering from the impact of ultra-low interest rates, however where it stands out is in its exposure to the growing tensions between China and the West. No wonder the shares are trading at their lowest level in more than a decade.

“The company – once the Hongkong and Shanghai Banking Corporation – faces the unenviable high-wire act of performing in a way which doesn’t attract the ire of politicians and regulators in the UK, US and Europe while also not alienating Beijing.

“Chief executive Noel Quinn, who assumed the role on a permanent basis in March 2020, is likely to see his tenure defined by how well he can balance these competing pressures.

“If this wasn’t enough, Quinn is also accelerating a major reorganisation process, with more radical options than the major redundancy programme likely being considered. Could a break-up of the group be on the cards?

“The tenor of today’s statement suggests that regulator pressure to cancel the dividend for the first time in 74 years may not have been unwelcome and it doesn’t look like investors should expect a return for the payout for the foreseeable future.

“This will not help sentiment towards the company among the many investors who historically held the shares for the income they provided.”

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


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.


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