Photographer: Justin Chin/Bloomberg

HSBC's Soaring Shares Have Hong Kong Traders Pining for More

  • As stock jumps, options investors are pushing bullish bets
  • Analyst views differ from traders, with gap to stock widening

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Introducing Hong Kong’s newest stock-market darling.

Traders can’t seem to get enough of HSBC Holdings Plc. They’ve sent the shares up more than 20 percent in 2017, and they’re using options to bet on further gains. Bullish contracts are now the priciest in more than two years relative to bearish ones, while the ratio of outstanding calls to puts is near its highest level since 2002.

Prospects for higher borrowing costs from the U.S. to Asia, which make lending a more profitable business for banks, have lifted financial shares worldwide just as appetite for expensive technology stocks waned. The rotation has been especially evident in Hong Kong, where first-half favorite Tencent Holdings Ltd. is trailing HSBC for a second straight month.

The charts below show just how the London-based bank, which reports earnings at the end of the month, is gripping investors in Hong Kong.

Options Market

While the cost of hedging against losses in the city’s equities has risen recently, for HSBC it’s the opposite. Bullish three-month options have become more expensive than bearish ones, with the gap reaching its widest since May 2015. HSBC contracts are now the priciest in a year relative to those on the Hang Seng Index, and all but one of the 12 most-owned options on the stock are bullish, including one wagering on a 3.3 percent increase by July 28.

Trading Volume

Some $4.7 billion worth of HSBC shares changed hands in Hong Kong in the past nine days, with the daily turnover more than triple the average of the last five years -- a period which spans the U.K.’s vote to leave the European Union, China’s equity bubble and the aftermath of the global financial crisis. On June 29, the stock’s busiest day since Brexit, HSBC accounted for 24 percent of all traded value on the city’s 50-member Hang Seng Index.

Soaring Valuations

HSBC shares are priced at 1.1 times the value of the lender’s balance-sheet assets, the highest since 2014 and far more than the average valuation in recent years. HSBC has traded above the 1 multiple this whole month after struggling below that level since the bubble in China’s equity-market burst two years ago.

Analyst Ratings

HSBC’s rally has surprised most stock analysts, who predict the shares will trade at HK$67.76 in 12 months, implying a 9.7 percent decline from the Tuesday close. That’s the widest gap since 2009 between estimate and actual price. The average analyst rating for the shares -- where 1 is the lowest and 5 the highest -- has dipped to 3.2 and is heading back to levels not seen since the depths of the financial crisis that year. The shares were little changed on Wednesday.

Market Cap

Worth about $194 billion in Hong Kong, HSBC is the fifth-largest company in the Hang Seng gauge. The index provider, which limits the influence that individual stocks can have on its benchmarks, cut the weightings of both HSBC and technology giant Tencent to 10 percent in mid-June.

HSBC will release first-half results on July 31. Its Hong Kong shares rose the most in five months in May after the bank reported a surprise jump in revenue.

One of the focus points is HSBC’s 5.3 percent dividend yield. The bank may generate as much as $42 billion in extra capital by the end of 2019, which it can use to increase payouts or buy back shares, making it an attractive stock for investors seeking income, Citigroup Inc. analysts wrote in a July 11 note.

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