HSBC (LSE:HSBA) shares jumped 5% in Thursday’s (10 April) morning session reflecting broader market optimism after Donald Trump paused the introduction of upper tariffs on 75 nations. This transfer has supplied non permanent aid to international markets, however HSBC’s vital publicity to China locations it on the centre of ongoing commerce tensions between Washington and Beijing.

Closing brief positions

I’d be cautious to say that the rally in US shares on 9 April and European shares on 10 April are actual, lasting rallies. It doubtless displays two issues. Firstly, the pausing of upper tariffs for 90 days in all probability implies that the worst potential commerce consequence is off the desk. The second is brief overlaying. That’s, merchants who had guess towards the market by taking brief positions have been compelled to purchase again shares to shut these positions as costs started to rise. This shopping for strain can speed up upward strikes. This additionally creates the looks of a broader rally even when underlying sentiment hasn’t basically improved.

China publicity: a double-edged sword

HSBC’s deep ties to China are each a power and a vulnerability. The financial institution has invested closely in its mainland operations, with $450m earmarked to broaden its presence by 2025. The financial institution operates 150 branches throughout 50 cities in China. It employs over 7,000 employees and offering providers starting from wealth administration to international banking. This in depth footprint implies that HSBC is the overseas financial institution with the most important geographical attain in mainland China.

China accounted for 63% of HSBC’s revenues in 2024. This far surpasses contributions from different areas such because the UK (22%) and North America (3%). Whereas this positions HSBC to learn from China’s long-term development potential, it additionally exposes the financial institution to dangers stemming from escalating commerce tensions. With the US-China commerce struggle intensifying and tariffs on Chinese language imports reaching as excessive as 125%, it has successfully made commerce between the 2 nations unviable because it stands.

In 2023, Chinese language exports to the US accounted for round 2.8% of GDP. With that in thoughts, and may these tariffs stick, it’s onerous to think about how China couldn’t see a substantial financial slowdown, even when it does introduce new stimuli. In fact the tariffs, of their present type, would stay a worst-case situation.

The underside line

The present earnings forecasts — made and compiled earlier than the sanctions have been launched — appears to be like robust. The inventory is buying and selling at 7.6 occasions ahead earnings, and this falls to six.7 occasions for 2026 after which six occasions for 2027. Coupled with a 7.3% dividend yield — rising to eight.4% for 2027 — it appears to be like good worth. Nevertheless, I’m very cautious to make hasty funding selections at this second in time. Whereas I’d anticipate a negotiated consequence to Trump’s commerce struggle, HSBC can be closely uncovered to any damaging consequence for China. That’s why I’m not shopping for proper now.