HSBC shares stage recovery, but is it sustainable?

Even after today's impressive rally, HSBC shares are down a fifth since January's peak. Richard Hunter, head of markets at interactive investor, runs through reaction to these quarterly results.

The tone has changed for the better at HSBC, where a renewed focus on Asia is beginning to bear fruit.

Revenue growth in an Asian region which contributed 83% of reported pre-tax profit is central to the bank's current ambitions.

Equally, continued reinvestment in the business has meant a spike of 6% in adjusted operating expenses, as the bank's focus on its digital capabilities comes into sharper focus.

Elsewhere, there are a number of promising improvements in the key metrics, most notably revenue growth all the way across retail and commercial banking, as well as wealth management, which have led to a sharply higher profit before tax in both the quarter and the year to date.

Meanwhile, the return on equity figure has nudged above the bank's 10% target, the traditionally robust capital cushion remains at over 14% and a there is a projected dividend yield of 6.5%. 

This yield is testament to HSBC's prodigious cash generative abilities as well as signalling confidence in prospects from management.

Source: TradingView one-hour chart (*) Past performance is not a guide to future performance

Aside from the tinge of disappointment in the operating expenses number, there are larger concerns at play which may be outside the bank's control. The ongoing cost and scope of regulation, particularly for a bank of HSBC's size, is material and Brexit uncertainty is unhelpful. 

Of particular concern, however, is the current position of the Chinese economy. Quite apart from recent economic data which suggest an economy coming off the boil, there are broader concerns as to the country's debt position and these issues are likely to be exacerbated by escalating trade tensions between the US and China which have yet to take full effect.

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As with the banking sector in general, these concerns have weighed heavily. HSBC has seen its share price decline by 19% over the last year, as compared to a 7.5% dip for the wider FTSE 100, and by 17% in the last three months alone. 

By definition, to establish sustained growth into a group of this size will be a marathon rather a sprint, but the initial reaction to these numbers suggest some signs of optimism from investors. 

It may require further confirmation of a positive direction, however, before the current market consensus of the shares as a 'hold' is subject to material upgrades.

*Horizontal lines on charts represent levels of previous technical support and resistance. Red line represents recent downtrend.