Stock

HSBC Loyalists Lose Faith After Stock’s $83 Billion Plunge

(Bloomberg) — HSBC Holdings Plc’s tumbling stock price is testing the patience of even the bank’s most loyal investors.

Choi Chen Po-sum, a former vice chair of Hong Kong’s exchange who has owned HSBC shares for more than 40 years, now calls her investment a mistake. Simon Yuen, a money manager who has lobbied unsuccessfully for the bank to reinstate its dividend, says the stock’s slump to a 25-year low may have further to go. Ping An Insurance Group Co., HSBC’s biggest shareholder, has passed on opportunities to express confidence in the bank, saying only that its holding is a “long-term financial investment.”

The responses underscore the depth of investor malaise toward HSBC, which has tumbled faster than every other major financial stock globally over the past six months. Even historically upbeat sell-side analysts have mostly turned bearish on the bank amid growing concerns about loan losses and its ability to navigate mounting tensions between the U.S. and China.

“I’ve lost faith,” said Choi, 89, who’s chair of National Resources Securities Ltd. in Hong Kong, where scores of individual investors have long considered HSBC to be a core holding. “You want the shares to recover? Don’t even think about it.”

HSBC’s Hong Kong shares lost as much as 2.6% as of 11:15 a.m. on Thursday. The stock has tumbled more than 9% so far this week, bringing the year’s decline to 54% and making it the worst performer in the benchmark Hang Seng Index. In London, the shares have fallen about 51%. After losing $83 billion of market value this year, HSBC is now smaller than Commonwealth Bank of Australia and trailing far behind major rivals such as Citigroup Inc.

Analysts have never been so downbeat on HSBC, with only 16.7% of 30 who follow the stock having a buy recommendation whereas just two years ago the ratio was 47%. Even after its slump, the bank is valued at 16.3 times forecast earnings for 2020, a pricier level than some peers. Both Citigroup and smaller rival Standard Chartered Plc trade at multiples of about 13.

Ping An, which has owned a major stake in HSBC since late 2017, has seen the value of those shares tumble by at least $8.6 billion over the past three years, according to data compiled by Bloomberg.

The depth of HSBC’s slump “means even long-term investors are starting to lose confidence in the stock, which is certainly a bad sign,” said Benny Lee, a director at Plotio Financial Group Ltd.

HSBC declined to comment on its share performance.

The growing disillusion in Hong Kong with the bank’s prospects comes after it earlier this year was among banks forced by U.K. regulators to scrap its dividend, causing an uproar with the city’s broad base of retail investors. It has also rankled China over its participation in the American investigation of Huawei Technologies Co.

Concerns are mounting that the bank’s expansion in China will be derailed after the ruling Communist Party’s Global Times newspaper reported over the weekend that HSBC could be named an “unreliable entity.” Penalties for companies that appear on the list include restrictions on trade, investments and visas. HSBC has declined to comment on the article.

“Should it be on the list, even without tough measures taken, its mainland China business would likely be adversely impacted as its clients reduce transactions,” Citigroup analysts led by Yafei Tian wrote in a note on Tuesday. “Mainland China clients in HK might also avoid unnecessary transactions with HSBC HK. In a worst case scenario, HSBC might be forced to divest its investments in mainland China.”

Read more: How Blacklisting ‘Entities’ Became a Trade War Weapon: QuickTake

HSBC Chief Executive Officer Noel Quinn last month warned about tough times ahead while reporting that first-half profit halved and predicting loan losses could swell to $13 billion this year. Quinn said the bank would attempt to hasten a shakeup of its global operations, accelerating a further pivot into Asia as its European operations lose money.

Some investors aren’t convinced it’s enough.

In Hong Kong’s derivatives market, the second-most traded HSBC stock option on Thursday was a bearish contract betting the shares will drop to HK$18.50 by the end of December. That implies a downside of more than 30% from HSBC’s current levels. The most traded option was a bullish call that expires next week at HK$30, with the contract losing three-quarters of its value.

“The share price will hardly recover in the near term and there’s still room for a further decline,” said Yuen, founder of Surich Asset Management. “Hong Kong investors’ love for HSBC is still there, but it’s indeed heartbreaking. The times have changed.”

(Updates with HSBC options trading in the penultimate paragraph.)

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