HSBC (HSBC) share price has nosedived in the past few days as investors assess its exposure to China and Hong Kong. The stock peaked at 657p on August 1st and has now pulled back by 10% to 591p. 

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China exposure

HSBC is a unique banking group because of where it operates. The company is the biggest bank in Europe by assets but it generates most of its revenue in Hong Kong and Mainland China. Most recently, the firm has been shrinking its exposure in countries like France, Canada, and the United States.

The biggest challenge for HSBC is its exposure to China, a country that is imploding, as I wrote here. Economic data published this week showed that new home sales in the country have plunged.

At the same time, some of the best-known companies in the country are starting to implode. It started with Evergrande, the giant conglomerate that collapsed in 2021. After that, smaller companies like Fantasia and Sunac missed their payments.

Last week, the situation worsened when Country Garden missed its payments. The firm, which is now building over 1 million apartments, has warned that its half-year loss will be worth over $7.5 billion. It also warned that it would miss its yuan and dollar bonds.

Therefore, most analysts believe that the housing sector, which accounts for a quarter of GDP is on the verge of collapse. If this happens, it will be a trillion-dollar burst whose contagion effects will be spread globally.

HSBC has done well following the collapse of Evergrande as evidenced by the most recent financial results. Its profit before tax jumped by $12.9 billion to $21.7 billion as its revenue jumped by $12.3 billion to almost $40 billion.

The question is how the company will do if the Chinese economy implodes as some analysts expect. In its most recent earnings, the company flagged its exposure to China’s commercial real estate.

HSBC share price forecast

On the daily chart, we see that the HSBC stock price formed a shooting star candlestick whose upper side was at 657.2p. In price action analysis, this pattern is one of the most bearish signs. 

HSBC stock has retreated below the important support level at 619p, the highest point on March 8th. It has also moved below the 50-day and 25-day moving averages, signaling that bears are in control.

The Relative Strength Index (RSI) and the MACD indicators have all drifted downwards. Therefore, the outlook for the stock is bearish, with the next reference level to watch will be at 550p.

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