MarketPulse Europe - The Double-Edged Sword of Asian Exposure

By Geoffrey Smith

Investing.com -- Having strong exposure to fast-growing Asia is generally something that has been good for company stocks in recent years. But the results – and the accompanying commentary – out of HSBC (LON:HSBA) today show that that can no longer be taken for granted.

HSBC – historically, the Hongkong and Shanghai Banking Corporation – is notionally a British bank, but it gets nearly 90% of its profits from Asia, and most of that comes from its operations in Greater China. It’s been the bank’s strategy for some years to ‘pivot’ more heavily to Asia, after a series of governance scandals at freewheeling local subsidiaries forced it to row back its previous pretensions to be ‘the world’s local bank’.

But what happens when the basket you’ve put all your eggs in gets shaken up by an assertive U.S. President?

The bank’s shares are down 4% in London this morning – and back in negative territory for 2019 to date - after it reported a fourth-quarter result so bad that it missed its full-year by a considerable margin. Revenue and pretax profit both rose last year, by 5.5% and 16% respectively, but both were well short of analysts’ expectations.

HSBC's loan growth in Asia slowed to only 5.5%, less than half of what the bank reported in 2017. New CEO John Flint told the Financial Times (metered access) that market revenues had ‘collapsed’ in December and told Reuters that slower growth this year was a possibility. No wonder it's the worst-performing stock in the FTSE 100 this morning, followed closely by Standard Chartered (LON:STAN) - another Asia-focused bank.

The worst, of course, could still be ahead. President Donald Trump has threatened to raise tariffs on $200 billion worth of Chinese imports to 25% from 10% at the start of next month if China doesn’t agree to a list of demands on reforming its own economy. “Obviously, 25 per cent tariffs — if we got there — that would be a different order of magnitude, and that could really start to disrupt supply chains,” Mr Flint told the FT.

Elsewhere Tuesday at 04:50 AM ET (09:50 GMT), the benchmark Euro Stoxx 600 was down -1.54 points, or 0.4% at 368.24. The U.K. FTSE 100 was down 0.5%, while Germany’s Dax index was down 0.1%, waiting for this month’s influential ZEW index of economic sentiment.

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