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Is HSBC's Profitability at Risk from Global Growth Concerns?

On Oct 5, 2015, we issued an updated research report on HSBC Holdings plcHSBC . Shares of this London-based bank have recorded a year-to-date negative return of 16.28%. We believe global growth concerns and rising operating expenses have made investors apprehensive toward the company's prospects.

Revenues at HSBC are anticipated to remain muted in the forthcoming quarters owing to the low interest rate environment and slow growth in China and Europe. Though revenues marginally rose in the first half of 2015, we believe global economic concerns will continue to weigh on the company's overall top line.

Further, with subdued growth in HSBC's mature markets (Europe, the U.K, and the U.S.), we believe revenues will remain strained in the near term. Moreover, high inflation and wage pressures in certain key emerging markets, where HSBC is increasing its investments, could exert pressure on its business growth in the region.

Therefore, it will be challenging for HSBC to improve its operating results merely on back of uncertain benefits like lower impairment charges.

Despite having a cost-saving plan in place, HSBC continues to face increasing operating expenses as a result of higher regulatory and compliance costs. Further, past business malpractices are now catching up with the bank, leading to heightened legal costs as well.

Hence, all these concerns have rendered analysts bearish about HSBC's prospects. Over the past 30 days, the Zacks Consensus Estimate has fallen 1.1% to $4.34 for 2015 and 2.1% to $4.27 per share for 2016.

HSBC currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Better-ranked foreign banks include Banco Macro S.A. BMA , Deutsche Bank AG DB and Mitsubishi UFJ Financial Group, Inc. MTU . While Banco Macro sports a Zacks Rank #1 (Strong Buy), both Deutsche Bank and Mitsubishi UFJ Financial carry a Zacks Rank #2 (Buy).

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DEUTSCHE BK AG (DB): Free Stock Analysis Report

MITSUBISHI-UFJ (MTU): Free Stock Analysis Report

BANCO MACRO-ADR (BMA): Free Stock Analysis Report

HSBC HOLDINGS (HSBC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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