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Um, look, I've just given a whole host of big factors going on externally as well. Why don't you give us the roundroin of how you see especially the the global trade situation, the tariff situation affecting HSBC and its clients?
Well, look, I think obviously lots of uncertainties, uh, you know, clearly every day a news article comes out about yet another trade deal may be concluded or not. So, uh, in fact, we just recently did a, uh, survey of our clients, about 3 or 4 thousand clients who this is their number one issue, and they're really trying to do figure out what to do, how to react, how to adapt. I'd say about 80% of them say that this is their number one priority. And it's really about how you look at the trade challenge, the uncertainties, uh, the unpredictabilities. They will stick to trade. All of them are saying they're going to continue to export, they'll continue to import, but they now need to figure out what they're going to do differently going forward. And so that is the biggest challenge right now.
And and fascinating that you will be aware as much as any of us that the markets are taking it pretty well that we don't see any anything crazy going on the bond market, nothing particularly crazy going on in the foreign exchange market. The dollar continues a longer-term decline. Equity markets continue to rally. The data looks solidish. It's not great, but there's no great oscillation on jobs, GDP, or CPI, the three main baskets as well. But your clients are all feeling it as well. Are they really concerned or actually just see it as just another headwind?
I think uh following liberation day, very concerned. And I was traveling quite a lot then, China, the Middle East, etc. I'd say there was a bit of shock what to do. The world order seems to now been changed. you know, what should their reaction be? I think they have gotten used to some of this, somewhat immune to it, although still very concerned. And I think they're looking to say, how do you then change your supply chains? How do you figure out where to go? The problem is it's difficult to figure that out given the uncertainties that we're seeing in the policy coming out of Washington.
Given the breadth the the geographic breadth of HSBC's business, your clients are all over the world, arguably the most international uh investment bank out there. How are your clients navigating this period? What kinds of, you know, actions services are they using on your side to try to prepare for this uncertain future as best they can?
Yeah, they're looking how to uh what contingency plans they should have. And so if you're, you know, importing through uh one of the countries affected, whether it be China or another country, you're looking for different supply chains. And so you're looking to how to model your supply chains first. The reason being if you want to consider changing a factory, that's a five to sevenyear type of process. So it's very difficult and you don't know where to go anyway. So it's easier to look for different ways just to source material or sell material. And so that's what they're doing today. I wouldn't say however many of them have the answer and they're really trying to see some sort of stabilization some sort of trajectory of where this is all going to end up. uh and so I think today it's it's I would say it's um confusion by many very focused on setting uh various different courses of action contingency plans if you will and really looking at what-if scenarios where they should go once this all settles which means and getting back to what you said Steve the financial markets seem to be much stronger than what I would say the view from many corporate boardrooms are today there's a dichotomy between the two that suggests there is a degree of complacency in the market if you know your clients you're talking to the companies that are you know behind the the stocks that investors are are buying here.
Yeah. I I think if you did an AI summary of all of the various uh earnings reports the word tariffs uncertainty unpredictability would come up and be sort of the major words that you would see. You know we saw it in the first quarters like it only came up in about 52% of S&P. I'm like who are the other 48? What are they what aren't they looking at? I mean, yeah, why sell them for a start?
But but Michael, one of their biggest concerns is is the availability of these are all amazing men and women running these companies. They they they wouldn't have got to the top if they weren't. And one of the key concerns I have, I guess they have when they go to HSBC and the rest of their banks is um tell me about the availability of capital. Tell me about the cost of capital. Um and then from your point of view, you and your risk management team, your audit, your your treasuries, everything, how much money are we going to lend out and at what price as well? It's availability of capital for these amazing men and women in business that I want to know about as well. Have you at HSBC just been a little bit more circumspect, a little bit more cautious about lending criteria?
Yeah, and that's a great question and uh I would say interestingly enough, we've not seen any deterioration in our loan books today. You know, credit quality any deterioration? Not really. And you would think it's just like the financial markets. There's resiliency built in here. Now, this is early days and I caution when everybody says, "Where's inflation? Where's the market reaction? Where's the credit deterioration? Early days yet, but I would say amazingly enough, no real deterioration whatsoever. And one thing that comes up time and time again, it came up with Morgan Stanley before, and I'm sure you'll echo this, is that people are delaying those 5 to sevenyear investment decisions you just mentioned there as well. Now, that's fair enough, but you can only delay that for a certain point. And so, so where are companies deploying capital? Are they hoarding capital or are they spending it in other ways?
I think they're hoarding today, waiting for the signs of where to put it in the future. But, you know, again, if you're, as you said, doing long-term planning on where the next factory is going to be, it's a big question mark today. You don't really know because you've got to figure out where the best labor market is, where the best regulatory environment is, but also where if you're selling into the US or elsewhere.
Tim Cook scenario, isn't it? I mean if the biggest mo well I say the biggest one of the most systemically important tech companies in the United States doesn't know where to go to India or try and bring it home or what they can bring home and the cost of their products if they don't know it's hard enough I just think they were going out of China now for many years they had planned it they had cited India as the place to go to that was they've been doing this what for three or four years now that that's a huge risk or a wrench thrown into the spanner to say where do they go now and it's a big question mark and and I don't think there is a place that anyone could say you know without sort of uncertainty this is a place I'm going to go to.
There's also a lot of uncertainty around where the dollar goes next and we've seen um you know some pretty unexpected moves in the greenback this year selling off in a way many hadn't expected. I know HSBC a major FX house. What are your clients doing in terms of uh hedging when it comes to currencies?
A lot more hedging. Okay. Yeah. They're much more active hedging. I think they're seeing, you know, it took everyone by surprise obviously a 10% drop in the dollar. It's it's it's backed up a bit. You know, it's now what 7% down for the year, I think. So, uh, but they're doing a lot of much more active hedging. And so, they're taking this very seriously. Kind of amazed they didn't already do that to be fair. You know, when it was only 1% oscillation, but you know. Yeah. You know, people have their policies. They, you know, they get a bit complacent perhaps, but yeah, they don't like a derivative. They don't like it like a a well my old business they don't like a put unless they have to because it's an expense. It is and if you're a corporate treasurer that is expensive and if you get it wrong you're going to have to answer to someone why did you overhedge so they kept it with a band and they probably did it very reasonably I think all been taken by surprise and it's you know 10% drop is a sign.
How do you feel about the geographical allocation at the moment and you have an incredible vantage point in your various roles of your big titles and what have you. I mean, we we we had um we want Europe to do better on this. We we're very, you know, I'm a proud European despite, you know, all that has happened over the last 9 years or but I I just want them to move quicker and and have a bigger bonfire of the regulation. How do you feel it's going?
Uh I would say if you divide your UK better, you've heard the speech last night. We're very happy to hear that. Uh continental Europe slower and I think that is something that you know policy makers have to consider. I think it is a very competitive world. I think this is a huge opportunity in particular for continental Europe. Uh when you talk to significant investors around the world, the big question is if I'm not going to go to the US for a majority or predominant amount of my investments, where do I go? Europe usually is the number one or the second destination today. It could be a first destination. I think it needs to look at deregulation. So the chancellor's speech last night was quite uh you know welcomed by many. Uh I think you need to have a similar reaction in Europe as well.
Do you think that's there is actually momentum behind that in continental Europe? Because we had we had the chief European strategist from Morgan Stanley on earlier who saying you know from a stock market perspective they really like the European banks because they are actually seeing some of the change that they've wanted to see. And they said from an investor standpoint they are seeing a lot of foreign interest in the European banks. They've done pretty well. It's 40% up year to date. Um, but it sounds like you on the inside are a little bit less encouraged by what's happening.
I would say if you compare where you see a deregulatory push, it comes from government first, regulators second. And so if you do not have a strong conviction by policy makers, elected officials, it's not going to happen. And I don't think that's happening in Europe.
Juliana quite rightly said you are one of the most globalized banks on the planet as well. How difficult is that US-China relationship for HSBC of all banks at the moment?
Yeah, you know we are able to manage it. We've been doing so for 160 years. So we understand all the the changes. You know we've been through all sorts of different historical events. You know two world wars etc. Uh so I think we're pretty good at managing it to be honest. That's one of our competencies is to figure out how to do so. We're very committed to China. Uh I used to run the US business and I'm we're very committed to that as well. There is still going to be lots of trade between China and the United States. I I think there's uh no question in my mind that the reason that the US negotiated firstly with China is because the US recognizes the imports of China as does the Chinese to the US. I was in China three times in the last couple months and you know yes world order is changing but that relationship will continue. Maybe in an altered form, but it will.