HSBC Holdings (HK00005) has a total market capitalization of over HK$2.4 trillion, giving it an absolutely pivotal position in the Hong Kong stock market.

However, since early August, HSBC's share price has been falling continuously, dropping from a peak of HK$168.916 to an intraday low of HK$143.6 today (October 8), a cumulative maximum decline of about 15%. In contrast, other large Hong Kong bank stocks have kept hitting new highs, making HSBC's decline look quite out of place.

HSBC and Chinese banks are both listed in Hong Kong, yet recently one has kept breaking down while the other has kept strengthening. What exactly is happening behind this?

Differences in profit by region

First, compared with other Chinese banks, the different regional composition of HSBC's profit is the most important difference. According to its interim report, HSBC's revenue mix mainly includes Europe at about 21%, North America at about 6.89%, and Asia at a combined total of about 36%. The revenue of Chinese banks mainly comes from mainland China and Hong Kong. Therefore, the biggest variable behind such a large divergence in share price performance between HSBC and Chinese banks comes from Europe and the United States.

Pressure from soaring long-term bond yields

Next, the sharp rise in global long-term bond yields has created obvious pressure on HSBC's valuation. In the United States, Treasuries have recently suffered a selloff, with the 10-year yield once touching 5.365% and the 30-year yield hitting a new high since May 2002. In Europe, long-term bond yields in the UK and Europe have also risen in tandem, and the Stoxx Europe Banking Index fell to its lowest level since July on October 7. HSBC is listed in both London and Hong Kong, and as European and US government bonds move together, its valuation is the first to be repriced.

UK budget and tax concerns

There is another piece of news that must be mentioned: HSBC is headquartered in the UK, and although its UK business is not the main source of profit, policy expectations there are highly sensitive. Reports say the UK plans to announce its autumn budget on October 28, and has already summoned executives from HSBC, Barclays, Lloyds, NatWest and others for discussions; the finance minister said the situation is "difficult" but did not promise no tax increases. The market worries that the bank surcharge may be raised, or a "windfall/bank tax" may be introduced. This expectation has also dealt a short-term blow to HSBC's share price.

Job cuts and AI restructuring

Adding to the troubles, there were also reports today that HSBC plans to significantly cut roles in UK wealth management and financial advisory as it uses AI to serve wealthy clients. Layoffs and cost cuts may improve efficiency over the long term, but in the short term they are easily interpreted as "wealth business contraction, possible loss of client assets, and complicated regulatory relations." When a share price is weak, negative news tends to be amplified.

Earnings still solid, but buybacks not stronger

Finally, looking at HSBC's performance this year, its interim report was actually not bad: first-half net profit reached US$19.5 billion, up 23% year on year, which was also an important reason its share price surged nearly 44% in the first eight months of this year. But after August, HSBC's share price kept weakening, while its buyback efforts did not noticeably increase. As a result, for institutions allocating to bank stocks, they would naturally prefer the stronger-performing Chinese banks.

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