If I’d invested £1,000 in HSBC shares a year ago, here’s how much I’d have now!

HSBC (LSE: HSBA) shares tanked in March along with other financial stocks. The correction was caused by concerns over the US and Silicon Valley Bank (SVB), which was forced to sell bonds at a loss.

So let’s take a look at last year’s performance, and see what HSBC will do next.

A year

Over 12 months, HSBC is up 5%. And if I have invested for all 12 months, I will receive around 4% in dividends. So the total return is 9%. That’s not too bad.

However, this is only part of the story. That’s because HSBC, along with other bank stocks, peaked in late February, early March, and plummeted after the SVB fiasco.

Now we are seeing some upward movement again. Investors know that big banks are safer than they suggest.

Correction

HSBC was one of the biggest UK-based fallers during the correction, along with Standard Chartered and Barclays. At its nadir, the stock fell more than 20%.

The correction comes from SVB and the assumption that other banks have unrealized bond losses. SVB’s $21bn bond portfolio yields 1.79% and has a duration of 3.6 years.

Importantly, bond prices fall as yields rise. And interest rates have risen – a lot – over the past 18 months.

But HSBC, like any bank, does not need to disclose unrealized losses on bonds. In addition, the bank has never opened up to one sector – SVB is a technology financier – and depositors are no longer asking for money.

So, there is no need to sell bonds at a loss. However, the bonds will be held until maturity.

Buy a dip

I have been topping up on HSBC with the share price falling. The stock currently trades at a price-to-earnings ratio of just nine, and offers a 5% dividend yield. In terms of value, this is slightly above some UK-focused banks, but reflects HSBC’s focus on higher growth markets, including China.

I still think it’s a great value. Higher interest rates are the main reason for optimism here.

Now, it may be that rates are rising a bit higher for banks, both in the UK and elsewhere in the world. When rates are unfavorable, borrowers struggle and debt can turn bad. This is why impairment charges have been so high over the past year, as individuals and companies face financial challenges amid rising borrowing costs.

However, the medium-term forecast, at least in the UK, is to see interest rates fall to more manageable levels. For many banks, the ideal central bank rate will be around 2-3%. This is where the net interest margin remains up but the depreciation charge should be lower.