UBS ups HSBC to 'buy', says risk/reward has shifted to upside

It noted that since 11 August when the PBoC unexpectedly weakened the renminbi, HSBC’s share price has dropped 15-20%, equivalent to a decline of around $30bn in market cap.

“We believe the market has de-rated the Asian franchise to a multiple of just 1.2x tangible book for a business that we expect to make a 16% return on tangible equity this year. The headline yield of 6.8%, which appears sustainable, also now provides support,” UBS said.

The Swiss bank continues to believe that within the HSBC group, there are a number of attractive, high return businesses, highlighting commercial/retail banking in Asia/UK.

It said it sees considerable scope for further group restructuring to free up capital and shrink the business back into its higher return footprint. It added that a tougher macro backdrop may even accelerate this process.

UBS cut its price target to 550p from 595p to reflect earnings downgrades and a lowering of the multiple applied to the group's Asian business to 1.6x tangible book from 1.8x.

At 1037 BST, HSBC shares were up 2.2% at 496.15p.