HSBC’s Asia pre-tax profits climbed higher in the third quarter, due in part to greater activity driven by volatile markets, but macro risks loom due to economic and geopolitical factors.

HSBC registered $3.3 billion of pre-tax profits in the third quarter, according to its latest earnings report, marking a 3.6 percent year-on-year increase.

The region accounted for more than 61 percent of the bank’s global pre-tax profits.

Volatility Fuels Trading

Although market turbulence from the Shanghai and Hong Kong stock exchanges hit HSBC’s wealth balance, which fell 2 percent in the third quarter, the bank benefitted from increased client activity. 

The revenue from the equities business, most notably in derivatives, grew 81 percent to around $400 million. 

Macroeconomic Risks

Despite the positive results, HSBC remains cautious with regard to looming risks in the region.

In terms of macroeconomics, the bank highlighted concerns about potential impact to the global economy from ongoing instability in China’s real estate sector. 

It noted it had no direct exposure to developers categorized by the Chinese government ‘red’ or high risk but had limited exposure to clients in the less risky category of 'orange’.

Geopolitical Risks

And in geopolitics, HSBC highlighted a myriad of risks in Asia, all of which are linked to China.

They include diplomatic tensions between China and the U.S., the U.K., the EU, India and other countries; developments in Hong Kong and Taiwan; sanctions and trade restrictions from the U.S., the U.K., the EU, Canada and other countries against Chinese individuals and companies; strategic competition between the U.S. and China; and increasing discussion in the U.S. and Europe on multilateral efforts to address certain areas of disagreement with China.

«The financial impact to the Group of geopolitical risks in Asia is heightened due to the strategic importance of the region in terms of profitability and prospects for growth,» the bank said. «Business sentiment in some sectors in Hong Kong remains dampened, although the financial services sector has remained strong and has benefited from stable liquidity conditions.»