HSBC (LSE:HSBA) shares are the top performing FTSE 100 stock in early trading on Tuesday, up 3.4% at 517p. The global bank has done well over the past six months, with the share price up 33%. We think there are a few key reasons for this move higher, and ones that we think could continue in coming months.
Higher interest rates
The main reason for the gains in the HSBC share price is the tightening of monetary policy from central banks around the world. Over the past six months, chatter had picked up on the need and desire from the major central banks to start reducing asset purchases and increasing the base rate. In fact, only last week we saw both the US Fed and the Bank of England raise rates by 0.25% respectively.
We think that this will continue this year, particularly in the US where some are forecasting as many as seven further hikes. Why does this benefit HSBC? It all comes down to the net interest margin, which is the key way a bank makes money. This margin is the difference between the rate it charges on liabilities such as loans and mortgages, and the rate it pays on deposits.
A higher base rate allows it to make a larger margin between the two, becoming more profitable in the process.
Diversified revenue streams
Unlike some other banks such as Lloyds Banking Group, HSBC has a wide range of target markets. This includes both from a geographical point of view and a client set. For example, it has operations in 64 countries around the world. This pans from Asia across to North America. It also has a reach across private, personal, corporate and institutional banking. This allows it to generate revenue via different streams. It also makes it less reliant on performance from one particular area.
Given the fact that the globe is recovering at different rates post-pandemic, having such a broad reach will put the bank in a good position for 2022. In our opinion, there will be a larger divergence in growth rates for different countries in years to come. Therefore, not being overly exposed to any one country/area we feel is a good thing for HSBC shares.
HSBC shares building on solid results
Finally, we think that the strong 2021 results recently put out should support further gains for the stock. Reported profit after tax for 2021 was up $8.6bn to $14.7bn and reported profit before tax up $10.1bn to $18.9bn.
Impressively, all regions were profitable for the full-year, supporting our second point mentioned above. A second interim dividend of $0.18 per share was declared, making a total for 2021 of $0.25 per share. This currently makes the dividend yield 3.8%, something that we think will attract income investors to buy HSBC shares this year as well.
Overall, we think the picture looks bright for the bank, and are considering adding it to our portfolio.