Business · Markets · 2 hrs ago
Singapore Bank Selloff Puts City-State’s Safe Haven Status to the Test
Singapore’s Straits Times Index has fallen 6.6% from a peak reached more than five weeks ago.
The decline is being led by DBS, OCBC and UOB, which together make up more than half of the index.
Investors are concerned that higher bond yields could reduce the appeal of bank dividends and cause losses on banks’ holdings.
Analysts have warned that these pressures could weigh on earnings, and some have lowered their views on Singapore bank shares.
The selloff challenges Singapore’s reputation as a safe place for investors, after its stocks had risen as investors sought stability amid global market uncertainty.
Some analysts say healthy loan growth and no clear signs of rising bad debt could limit the risks.
The banks’ results due next month will provide an important test of their earnings and capital returns.
Singapore bank shares have fallen amid fears of earnings downgrades, testing the city-state’s reputation as a safe haven.
The Straits Times Index has dropped 6.6% from a peak more than five weeks ago.
DBS, OCBC and UOB lost a combined $22.4 billion in market value last week.
Analysts point to higher bond yields, potential trading-book losses and stretched valuations as risks for banks.
Some strategists say Singapore’s growth prospects and government efforts to revive the equities market could limit the downside.
- Who
- Singapore banks DBS, OCBC and UOB are at the centre of the selloff.
- What
- Falling bank shares are putting Singapore’s safe haven status and stock benchmark under pressure.
- When
- The selloff has followed a benchmark peak more than five weeks ago; bank results are due next month.
- Where
- Singapore.
- Why
- Investors are concerned about earnings downgrades, higher bond yields, losses on banks’ holdings and stretched valuations.
Cautious analysts and investors
More optimistic strategists
Outlook
Cautious analysts and investors
The selloff could spread beyond banks, and earnings or capital returns could weaken.
More optimistic strategists
Singapore’s growth prospects and government efforts to rejuvenate the equities market could limit downside risks.
Banks’ condition
Cautious analysts and investors
Higher long bond yields could create mark-to-market losses and weigh on capital activity.
More optimistic strategists
There are no overtly concerning signs of bad debt, and loan growth is relatively healthy.
Singapore stocks hit a string of highs as earnings growth and market stability attracted institutional investors.
The Straits Times Index reached its peak before sliding 6.6%.
DBS, OCBC and UOB shed a combined $22.4 billion in market value.
Singapore banks are due to report results, which Alex Ho called the first real test.
- Straits Times Index
- Down 6.6% from its peak
- Bank market-value loss
- $22.4 billion combined last week
- Banks at the centre of the selloff
- DBS, OCBC and UOB
- DBS valuation
- 16.9 times 12-month forward earnings
- MSCI financials gauge valuation
- 13.2 times earnings
What people are saying
The risk is a longer selloff that spreads beyond the banks, or earnings and capital returns that start to weaken.
November’s results will be the first real test.
Critically, there are still no overtly concerning signs of bad debt, which tend to characterize bear markets for the banks, while loan growth is relatively healthy.
As we enter the traditionally turbulent month of October, the only thing we can be sure of is more volatility in price action ahead.
Sources
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