HSBC's Share Buybacks: A Bold Bet on Value or a Risky Gamble?

As HSBC continues its aggressive share repurchase program—most recently buying 3.2 million shares for HK$299.6 million on June 10—the question remains: Is this a strategic move to capitalize on undervaluation, or a risky bid to prop up investor confidence amid worsening macroeconomic headwinds? With geopolitical tensions, gold's ascent as a safe haven, and market concentration trends reshaping investment landscapes, the answer hinges on parsing the bank's financial health, execution risks, and the broader economic currents it navigates.

The Buybacks: Scale and Strategic Ambition

HSBC's recent repurchases—3.2 million shares in Hong Kong and 1.9 million globally for a total of ~$46 million—build on its $3 billion buyback program launched in early 2025. To date, the bank has repurchased nearly 20% of its $3 billion target, signaling unwavering commitment to shareholder returns. This comes amid a 25% year-on-year drop in Q1 2025 pre-tax profits to $9.48 billion, driven by trade-related revenue headwinds and restructuring costs.

The move is framed as a response to its perceived undervaluation. HSBC's stock trades at 1.02x price-to-tangible-book (P/TB), a 38% premium to its five-year median but 60% below the global banking sector average of 2.47x. Management argues this discount underestimates its fortress balance sheet (CET1 ratio of 14-14.5%) and its pivot toward Asia's wealth management sector, which grew 21% YoY in Q1. By shrinking its share count, HSBC aims to boost earnings per share (EPS) by ~2%, even without top-line growth.

This comparison would reveal whether HSBC is underperforming its peers as broader markets hit record highs.

Valuation: Undervalued or Overexposed?

The buybacks' success depends on whether HSBC's shares are indeed undervalued or if the discount reflects legitimate risks.

Bull Case: A Contrarian Opportunity

• Asia's Growth Engine: HSBC's $300 million annual cost savings from restructuring into “Eastern Markets” and “Western Markets” divisions could unlock value in Asia, where wealth management fees—less cyclical than lending—are now a larger revenue driver.
• Capital Strength: Its A+ credit ratings and CET1 ratio above 14% provide a buffer against macro shocks, such as U.S.-China trade disputes or rising credit losses.
• Dividend + Buyback Yield: The 6.19% dividend yield (after a 68% cut) plus buyback returns (1.46%) offers a total yield of ~7.6%, attractive in a low-yield environment.

Bear Case: Macro Risks and Structural Challenges

• Trade Tensions: HSBC's Asia exposure makes it vulnerable to U.S.-China tariffs, which could reduce transaction volumes and add $500 million in credit losses annually.
• Earnings Volatility: While Q1 profits surged 317% QoQ (due to one-off gains), the 25% YoY decline highlights underlying fragility. The post-earnings performance has been volatile, with an average return of -18.7% over 20 days, raising concerns about investor confidence in the bank's execution. Historical backtests, however, show that this strategy yielded an average return of 18.05% over the same period, albeit with significant risk. The maximum drawdown reached -27.67%, and a low Sharpe ratio of 0.19 underscores the strategy's poor risk-adjusted returns, suggesting that while gains can be substantial, they come at the cost of high volatility.
• Market Concentration: The FTSE 100's record highs may mask sector-specific risks, as banking stocks lag due to low interest rates and regulatory pressures.

Gold's Rise: A Contrarian Signal or Divergent Trend?

HSBC's buybacks coincide with gold's ascent to $2,000/oz, driven by geopolitical uncertainty and safe-haven demand. This creates a paradox: If investors are fleeing equities for gold, why would HSBC's stock be undervalued?

• Gold as a Counterweight: Gold's rise reflects distrust in equities, but HSBC's buybacks could signal confidence in its ability to outperform peers through cost discipline.
• Sector-Specific Dynamics: Banking stocks often decouple from gold trends when capital strength and dividends are priorities. HSBC's fortress balance sheet and yield may appeal to income investors even as broader markets retreat.

This chart would show if gold's rise correlates with HSBC's underperformance or if the two assets move independently.

Investment Thesis: Proceed with Caution

HSBC's buybacks present a compelling but high-risk proposition:

• Bulls: Long-term investors seeking yield and exposure to Asia's growth should consider HSBC. Its 7.6% total return and strategic restructuring could unlock a valuation re-rating if macro risks subside.
• Bears: Short-term traders and risk-averse investors should avoid HSBC. Its 25% YoY profit decline, volatile post-earnings performance (including a 27.67% maximum drawdown in backtests), and exposure to trade wars make it a risky bet in turbulent markets.

Key Considerations:
1. Monitor geopolitical developments: A U.S.-China trade deal could boost HSBC's revenue, while escalation would pressure its credit metrics.
2. Track cost-cutting progress: HSBC aims to save $1.5 billion annually by 2026. Delays in restructuring could derail EPS growth.
3. Watch gold's trajectory: If gold's rally continues, HSBC's stock may remain under pressure unless its buybacks visibly shrink the share count and lift EPS.

Final Analysis: A Gamble Worth Taking?

HSBC's buybacks are both a strategic bet on its undervaluation and a defensive move to mitigate macro risks. For income investors with a long-term horizon, the 7.6% yield and Asia-focused growth story justify a cautious position. However, the bank's reliance on a fragile revenue base and geopolitical hotspots means this is not a “set-it-and-forget-it” investment.

Actionable Advice:
- Buy: Accumulate HSBC shares if gold stabilizes below $2,000/oz and the FTSE 100's rally signals broader market confidence.
- Hold: Wait for clarity on trade negotiations and the bank's Q2 2025 results before committing capital.
- Sell: Exit if credit losses rise sharply or the buyback program stalls due to regulatory hurdles.

In the end, HSBC's buybacks are less about timing the market and more about betting on its ability to navigate a minefield of macro risks—and emerge stronger on the other side.

This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult a licensed professional before making investment decisions.