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HSBC (LSE: HSBA) shares have had a barnstorming run. Incredibly, they’re up around 312% in five years, with dividends on top. In doing so, the Asia-focused bank has transformed into the UK’s biggest company, with a market-cap of £261bn.
The other big FTSE 100 banks have done well too, but HSBC has left Barclays, Lloyds and NatWest trailing. A big reason is its huge exposure to Asia, particularly Hong Kong, where it has a dominant position.
Its wealth management and corporate banking businesses have also been firing on all cylinders. Perhaps not coincidentally, Asia-focused blue-chip bank Standard Chartered also beats the FTSE 100 pack, up a staggering 430% over five years.
The wider sector has benefited from higher interest rates. Banks have earned more from lending while their funding costs don’t always rise as quickly. 2025 results were strong, once one-offs were removed. Underlying profit before tax jumped 7% to a record $36.6bn, while underlying return on tangible equity (RoTE) rose from 16% to 17.2%.
Valuation looks stretched
Shares don’t climb in a straight line forever though. While the HSBC share price is still up 49% over 12 months, the three-month gain is just 6%. The trailing yield has fallen to 3.6%, so new investors aren’t getting the same income as before.
Investors may be taking some profits. New buyers may look at today’s price-to-earnings ratio of 16.5 and decide HSBC no longer looks cheap. Its price-to-book ratio is around 2, also well above the long-term average.
There are other concerns as China tightens controls around cross-border capital flows, including stricter scrutiny of mainland money held in Hong Kong.
The UK economy’s another worry. HSBC’s UK business generated £5.6bn of pre-tax profit in 2025, but the group is exposed to struggling UK consumers and the housing market. There’s also the threat of UK Autumn Budget tax hikes next month, such as a higher bank levy or cuts to the interest earned on Bank of England reserves.
Analysts forecasts are downbeat, with a one-year consensus target of just 1,545p. If correct, that would mark meagre growth of just 1% from today’s 1,528p. It’s pretty disappointing.
Three things could drive HSBC shares higher:
- Stronger Asian growth could boost lending, wealth management and investment banking.
- HSBC’s 2026 earnings could continue to beat expectations, helped by higher net interest income and fees.
- Continued dividends and the resumption of share buybacks could keep returning cash to shareholders.
Three things that could knock this stock:
- China’s tighter capital controls could restrict some cross-border business.
- A weaker UK economy could increase bad debts and squeeze lending growth.
- The government could extract more money from the banks through taxation or regulation.
I still think HSBC’s worth considering, especially on a dip. It’s still making huge underlying profits, up 13% to $10.3bn in Q2, has restarted its share buyback programme, and maintains a progressive dividend policy. But there are more exciting buying opportunities out there today…
Should you invest £5,000 in HSBC Holdings right now?
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Harvey Jones owns shares in HSBC, Lloyds and NatWest.
This story originally appeared on Motley Fool
