If I’d invested £200 in HSBC shares 3 years ago, here’s how much I’d have now!

HSBC (LSE: HSBA) shares were pushed further this week after the company announced surging profits for the last quarter. The Asia-focused bank reported pre-tax earnings of $5.2bn. That’s a big jump from $2.7bn, and more than the company’s $4.96bn compilation average.

So let’s take a closer look at this FTSE 100 steady Would it have been a good buy three years ago, and where next?

Average returns

Over three years, HSBC is up 15%. So 5% per year annual return. It’s not bad at all, but nothing to write home about.

So if I had invested £200 in HSBC shares three years ago, today I would have £230 in shares, plus dividends. The dividend will be worth more than £25.

All in all, I’m not going to be too happy about this return. After all, I am not a greedy investor and HSBC offers some level of security through a diverse geography and a wide range of activities.

Performance improves

The majority of this stock price gain has come in the past three months – the stock is up 33%. This is a huge profit for a company valued at £126bn.

So what is behind this share price? Well, to begin with, we can observe improving macroeconomic indicators and positive events for HSBC.

One is the reopening of China after years of strict Covid restrictions. China’s economy will grow by 5.2% in 2023, and it is positive for cyclical stocks – these are companies that tend to perform in line with the economy.

We can also see an improving macroeconomic environment in Europe. UK recession forecasts appear shallower than anticipated, despite a high interest rate environment.

The recent rally was fueled by a well-received earnings report earlier this week. HSBC said its quarterly profit almost doubled, driven by a rise in global interest rates.

However, full year profit fell to $17.5bn from $18.9bn. This is largely down to a $2.4bn charge to sell its retail banking operations in France.

HSBC is also in the process of selling its Canadian business. The bank said it plans to use the proceeds to reward shareholders after the deal is completed. Shares pushed up on this news.

What am I doing?

Well, I am already a shareholder in HSBC, but I will buy more shares if I have the funds. Although I am generally concerned that the bulls could quickly return as investor sentiment changes.

In general, I see banks as an attractive place to invest today. Valuations are low – HSBC trades with a price-to-earnings of 10 – strong net interest income, and yields above the average index.

It also seems likely that central bank rates will remain on hold for longer with inflation proving sticky and the economy will be more resilient to higher borrowing costs.