HSBC drops 6.5% in Hong Kong on banking contagion worries

HSBC (HKG: 0005) (LON: HSBA) shares are 6.9% down in Hong Kong and, so far in London, up 4%. This is partly simply a function of time zones and market opening times. One the other hand we can view it as an example of the sort of volatility we're likely to see as the markets digest the forced sale of Credit Suisse to UBS. We should note that the HKD is pegged to the USD and the USD to GBP exchange rate hasn't moved that much - so it's not merely an FX effect we're looking at here. 

The underlying issue here is of course Credit Suisse. If one of the world's top 30 systematically important banks can go down then might we have to worry about HSBC as well? Or, more likely, should we worry about a slowing global economy and thus the outlook for HSBC's profits. It's even possible to go to a third iteration and note that rising interest rates are good for banks - they expand the interest rate margin they live off - and thus the speculation about central banks slowing such rises is deterimental to HSBC prospects.  

HSBC share price from London Stock Exchange Collected

At this stage there's probably a simpler explanation. The markets, as a collective whole, simply haven't quite made up their minds as yet. As action flows across the time zones we're seeing different opinions dominating. That's what explains the near 10% difference in performance between HSBC's Hong Kong price and HSBC's London price. We're also going to need to go around the globe and see what a fully operating London does, then how New York reacts, before we see the full effects. 

As Robert Shiller got the Nobel for and as Galton noted with his Ox, it's only then everyone has had their say that we find out what the true market estimation of a price is. So, we could put this down to HK nervousness about what Europe's opinion was going to be, now we're beginning to see what Europe's is and so we'll arrive at the global consensus.

That does mean that it's still entirely possible for that consensus to change of course. Bank stocks are not buy and forget positions at present.