HSBC has had a strong start to the year, despite the challenges faced by the banking industry. The bank’s core business has shown resilience, defying the negative sentiment towards banks in general. One of the key factors contributing to HSBC’s success is the expectation of rate hikes by the Federal Reserve and the Bank of England, which has been beneficial for the bank.

There are several growth drivers on the horizon for HSBC. The reopening of the China/Hong Kong border is expected to boost its non-interest income, particularly through wealth management services. Additionally, the sale of its non-core Canadian business has provided HSBC with significant capital flexibility. The bank has also made efforts to streamline its operations and reduce costs, positioning itself well to navigate the transition into lower interest rates.

HSBC’s strategic initiatives, such as the pending sale of HSBC France, have the potential to further improve profitability and increase capital returns. Despite these positive developments, HSBC’s stock is currently trading at a discount to its book value. As sentiment towards European banks improves over time, it is expected that HSBC’s stock will be re-evaluated and its value will be recognized.

In the meantime, investors can benefit from a well-covered mid-single-digit percentage yield. HSBC’s Q1 results have been impressive, with resilient operational performance and a strong capital position. The bank’s return on tangible equity (ROTE) exceeded expectations, clearing the path for potential upward revisions. The disposal of its non-core Canadian business has unlocked capital and provided opportunities for capital returns through buybacks and dividends.

HSBC’s fundamental strength and attractive valuation make it an appealing investment option. The stock’s current discount to book value is not reflective of its true worth.