Making money: what the experts think
HSBC punished
It’s bank reporting season, and HSBC got proceedings under way with a glum set of results featuring a 62% crash in headline profits in 2016. Much of that stark percentage fall was down to the one-off costs of restructuring, said Citywire – the overhauling of its private banking business and the sale of its Brazilian operations. But even once those costs and currency movements were stripped out, revenues were flat. Cue much navel-gazing in the City, and a sharp correction to HSBC shares, which had been riding high. Analyst Laith Khalaf of Hargreaves Lansdown views the bank, ominously, as “a shining example of how the decline of sterling has bumped up the price of some of the largest companies, without much progress in underlying profits”.
Protectionist worries
“Congratulations if you bought shares in HSBC this time last year,” said Nils Pratley in The Guardian: your investment has risen by 50%. But that’s actually only partly down to sterling’s decline. “A bigger factor is the expectation that interest rates will rise in the US.” For “well-capitalised” HSBC, each quarter-point increase equates to $250m-$300m in net income – “very useful”, assuming the US Fed “obliges on the rate front”. If not, the excitement “will be harder to sustain”. The underlying point is that HSBC is “still struggling to find growth” in the teeth of declining global trade, “and the threat of protectionist trade policies is a serious worry”. This week’s 6.5% fall in the share price was overdue.
The boring bubble
M&A activity is “always worth keeping a close eye on”, said John Stepek on Moneyweek.com. “It’s one of the most obvious indicators that a sector or theme is becoming overheated.” And that makes the giant Unilever tilt (see above) significant, even though it failed. Arguably, the most obvious asset in “bubble” territory right now is bonds; but “defensive blue-chip” shares, paying reliable dividends, have also seen a rush of investors seeking alternative income sources. Unilever is a “classic example” of the kind of multinational “buy-andhold-forever stock so beloved of the post-2009 rally”. We had a dotcom/ telecoms bubble in 2000, and a banking/ property bubble in 2007-08. “Now we have a bubble in boring stuff.”