The US has imposed tariffs on US$250bn of Chinese imports this year and has threatened to increase the levy next year. The measures are likely to impact Chinese exports, which is expected to provide a drag on the nation’s gross domestic product (GDP).
“HSBC's share price has historically been 72% correlated to the GDP growth of the countries in which it operates, it is therefore vulnerable to a fall in GDP in one of its significant geographies,” RBC said.
It added: “HSBC's direct exposure to China is 11% of profits however this increases to 59% if we include indirect exposure from Hong Kong and Singapore whose own economies are strongly correlated to Chinese growth (77% and 86% respectively).”
RBC cut its recommendation on the stock to ‘underperform’ from ‘sector perform’ and lowered its target price to 730p from 560p.
The broker said its estimates for pre-tax profit in 2020 are 5% below consensus forecasts. HSBC has guided to a return on tangible equity of more than 11% but RBC predicts 10.5%.
“We are more negative than consensus on CAGR (compound annual growth rate) revenue growth (RBC estimate 5.1%; consensus forecast 5.9%) driven by our expectation of a slowdown in China and the potential for a knock on effect in HK and Singapore from a dampening of loan growth and lower wealth management revenues.”
In morning trading, shares edged down 0.12% to 606p.