Singapore bank stocks are at record highs. Should you buy, hold or sell?
Analysts say the decision to buy, hold or sell has less to do with price and more to do with why an investor owns the stock in the first place.
A row of ATMs in Singapore. (File photo: CNA/Jeremy Long)
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SINGAPORE: Singapore bank stocks reached fresh records this month, leaving two groups of investors with a decision to make: those already holding the shares are weighing whether to take profits, while those without exposure are wondering if they have missed the boat.
DBS shares have risen more than 27 per cent this year and are trading around S$72 (US$56). OCBC has climbed over 43 per cent to around S$28, while UOB has gained 20 per cent to trade above S$42.
Analysts largely believe the three banks can continue to perform well and see share prices rise further over the long term.
The decision to buy or hold depends on each investor’s existing exposure, said Mr Kenneth Tang, deputy head of Asian equity at Amova Asset Management.
An investor already heavily invested in Singapore equities is “fairly positioned and riding this story” and probably should not put the next additional dollar into local banks, he said. But someone who bought in for the first time and had planned to add more shares should stick to that plan.
“I believe that this conviction that has led to the share price performing well is actually affirming my own investment thesis, and I should actually invest more because it is actually turning out to be right,” said Mr Tang.
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Investors should also weigh the role the banks play in their portfolio, he said. Those holding the stocks mainly for dividend income should not be swayed by short-term price moves.
“I would not sell. I would just keep owning it because that’s really what I am supposed to do from an income point of view,” he said.
ANCHOR ON THE THESIS, NOT THE PRICE
Analysts said the key is to focus on why an investor believed in the stock in the first place, rather than react to price swings.
“Tune out the price action and anchor on the objective,” said Mr Glenn Thum, research manager at Phillip Securities Research.
A stock with the financial strength to absorb losses and an expected dividend yield of 5 to 6 per cent does not become a “sell” simply because it has hit a record, he said.
“The mistake in both directions is trading the chart rather than the thesis,” he said. “You exit when the earnings or dividend story breaks, not when the stock just feels expensive.”
Mr Eric Xiao, head of sales at CMC Markets Singapore, suggested a simple test: before buying, write down what would have to change about the business, not the price, for you to sell. That could be a dividend cut, bad loans rising past a certain threshold, or erosion of the company’s capital base.
“If you can’t say what would make you sell, you aren’t ready to buy,” he said.
“That one rule takes care of the FOMO buyer and the person itching to cash out, both at once,” he said, referring to the “fear of missing out”.
Mr Xiao also flagged the risk of over-concentration. Anyone holding an exchange-traded fund tracking the Straits Times Index already has exposure to DBS, OCBC and UOB, he noted.
“Buying the banks on top of that concentrates a bet you have already placed. Investors often reach for them, thinking they are doing the opposite,” he said.
EARNINGS LIKELY TO CONTINUE GROWING
The rally has been driven partly by shifting interest rate expectations, which moved from anticipated cuts to stabilising rates with the potential for a hike.
Higher rates typically benefit banks by widening the gap between what they earn on loans and what they pay on deposits.
But beyond the interest rate cycle, analysts are also confident in the banks’ growing wealth management business as a structural trend supporting earnings.
RHB’s research analyst cited robust wealth fees reported in the first quarter. “We are still positive on the outlook for wealth management activities, which should continue to help underpin non-II and operating income growth,” the analyst said, referring to non-interest income.
Wealth management fees will likely remain an earnings driver, said Mr Xiao, adding that this is why global interest rates and the Middle East conflict matter less to the banks than they would have five years ago.
“Geopolitics moves oil, sentiment and the cost of risk. It does very little for a wealth franchise,” he said.
VALUATION RISKS, MACRO RISKS
But does not mean share prices will keep going up, Mr Xiao said.
A bank can keep earning well even as its valuation multiple corrects, he said, adding that he expects the business to hold up better than the share price.
Bank stocks have “run very hard”, so short-term valuation risk remains, said Mr Tang. “The banks are trading at relatively lofty levels now, based on the historical range.”
Macquarie Capital’s head of ASEAN equity research, Mr Jayden Vantarakis, pointed to the sector’s sensitivity to broader economic conditions.
“Banks are influenced heavily by the macro and market conditions, so key risks we are looking to include the overall growth environment,” he said, noting the potential impact on lending, asset quality, interest rates and market performance.
For investors looking to enter the market, analysts said each bank presents a different case.
RHB said DBS’s dividend policy offers good visibility on dividends and yields, though its valuation carries a premium over the other two.
UOB is the cheapest of the three, which RHB attributed partly to weaker asset quality metrics, though the stock could offer a “catch-up” play if macroeconomic conditions keep improving.
OCBC is the middle-ground option, with a robust balance sheet, a solid wealth franchise and reasonable valuations, RHB said.
Source: CNA/an(cy)
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