Singapore’s largest lender, DBS Group, has beaten market expectations with a 17% year on year rise in profits.

Earnings per share (EPS), came in at S$ 0.63, 8.7% higher than the Bloomberg consensus forecast of S$ 0.577. Quarterly net income of S$ 1.6bn was boosted by higher net interest margin (NIM), which has risen by 6 bps year on year to 1.91%. Net fee income also increased by 9% to S$ 767 million. A one-tier tax exempt dividend of S$ 0.30 was declared for the quarter.

The prospect of NIM-driven income will soon come under pressure as the Fed is widely expected to kick off a new easing cycle as soon as this Wednesday, slashing its policy rate from current 2.25-2.50% in the FOMC meeting. Singapore and Hong Kong interest rate follows the US rates and thus might start to decline as well. This will put pressure on local banks’ interest margin against the backdrop of deteriorating economic fundamentals.

The growth of DBS’s 2Q earnings was supported by several key pillars, underscoring the group’s integrated capability to drive growth with broad-based franchise and digital initiatives. Healthy NIM growth and strong market position in the last rate-hiking cycle put it in a good position to withstand future headwinds.

DBS is currently trading at S$ 27.00, priced at 11.49 times P/E and 4.4% dividend yield. Technically, its share price has broken out above a 61.8% Fibonacci Retracement level of S$ 26.85 following the earnings announcement this morning. However, the previous ‘gap’ between S$ 27.0- 27.5 remains a key resistance zone to be penetrated. Heavy selling pressure is expected to be found around this area.

Japanese yen has strengthened against most of its G10 peers this morning following the news that Japan’s Government Pension Investment Fund (GPIF) has started to hedge the currency for part of its overseas bond investment. This is a defensive move for the yen and will result in large yen-buying positons in the market once put into practice. Lower USD/JPY also reflected a cautious mood at the Asian opening as trade talks, the Fed, and geopolitical tensions hovered over investors’ minds this week.

The high-level trade meeting between US and China will commerce this week in Shanghai. Although the resumption of trade negotiations is encouraging, investors shouldn’t put too much hope on the result, as neither side has shown urgency to complete a deal soon. President Trump said this weekend that China may want to close the deal after the 2020 presidential election. Before that, President Trump will have to focus on his re-election campaign and Beijing will have a window period to fix its economic problems.

DBS Group

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