The three Singapore listed banks which have a significant combined market capitalisation weightage of approximately 45% in the benchmark Straits Times Index (STI), the barometer of the Singapore stock market will report their respective Q4 2021 earnings in the next coming two weeks: DBS Group on 14 February (Monday), United Overseas Bank on 16 February (Wednesday) and lastly, Oversea-Chinese Banking Corp on 23 February (Wednesday).
Analyst’s consensus forecasts compiled by Refinitiv have been rosy; both DBS and United Overseas Bank net incomes for Q4 2021 are expected to grow by +42% year-on-year to S$1.43 billion and S$0.98 billion respectively while Oversea-Chinese Banking Corp’s expected Q4 2021 net income is pegged at a lower growth rate of +6% year-on-year to S$1.20 billion.
Why do the three banks’ earnings matter?
Prior to the release of its upcoming Q4 earnings results, the share prices of DBS, United Overseas Bank and even Oversea-Chinese Banking Corp (despite major technical glitch that caused the recent wide-spread fraudulent scam attacks on its customers’ deposits) have been on a tear to the upside and outperformed the benchmark STI both on a rolling three months and year to date basis.Source: TradingView (click to enlarge) Source: TradingView (click to enlarge)
Year to date as of 9 February 2022, the top performer is United Overseas Bank that has recorded a magnificent double-digit rally of +21.8% followed by Oversea-Chinese Banking Corp and DBS at +15.96% and +12.78% respectively over a gain of +9.12% seen on the benchmark STI reinforced by positive corporate news flow where United Overseas Bank has acquired Citigroup’s consumer businesses in Malaysia, Thailand, Indonesia and Vietnam while DBS announced its purchase of Citigroup’s consumer business in Taiwan in late January.
Given their significant combined weightage of 45% in the STI, the three Singapore banks’ stellar performances in their share prices have left the Singapore stock market unscathed in January in the wake of an increasingly hawkish guidance from the US central bank, the Fed on its impending tighter monetary policy. STI managed to squeeze out a monthly gain of +4% in January and outperformed the US stock market that saw a sell-off in technology and growth-related stocks; the US S&P 500 declined by -5.3% over the same period. Hence, if the current positive feedback loop of the three Singapore banks continue to persist in post earnings announcements, it may propel the STI to higher levels in February.
Key factors to watch
- Guidance on the outlook of net interest margins; potential uplift after three years of downside pressure due to a persistent low interest rates environment engineered by developed nations’ ultra-loose monetary policies that are expected to be reversed in 2022. Given the recent hawkish guidance rhetoric from the Fed, Singapore’s interest rates; the three-month SIBOR and SOR are likely to inch higher in H2 2022 as their movements are highly positive correlated with the Fed funds rate.
- Striking a balance between potential economic benefits from localised re-opening activities in an endemic post Covid-19 environment in Singapore that can improve loans growth while external demand for goods and services are likely to be dampened due to an increase pace of tighter monetary policies from developed nations if elevated inflationary pressure persists in H2 2022 that may lead to a less aggressive stance on paring back loan loss provisions in the coming quarters.
Next up, we will be doing a combination of short to medium-term absolute and relative momentum analysis of three Singapore banks and ranked them according to their respective adjusted combined weightage average momentum scores normalised by their respective 10-day average true range values (the highest value will be ranked higher).
Adjusted combined weightage average momentum values are defined by the combined weighted average momentum values divided by the respective stocks’ 10-day average true range (ATR) so that we can have a normalised comparison as different stocks/instruments will have significantly different range of prices; for example, a $10 stock vs. $100 stock.
Based on closing prices of 9 February 2022, Oversea-Chinese Banking Corp has been ranked the highest according to its adjusted combined weightage average momentum value.Source: TradingView (click to enlarge)
Chart Focus - Oversea-Chinese Banking Corp (medium-term impulsive up move sequence intact)
Source: CMC Markets (click to enlarge chart)
- The share price of Oversea-Chinese Banking Corp (OCBC) has managed to stage a bullish breakout out from a former medium-term descending trendline resistance from 10 May 2021 high on 12 January 2022. It has rallied by 9% to record a daily close of 13.24 on 10 February 2022, a new-52-week high accompanied by an increasing volume since 1 December 2021 low that has marked the terminal inflection point of its prior 7-month of corrective down move from 10 May 2021 high of 12.76.
- The daily RSI oscillator is now coming close to an extreme overbought level of 86%, a level not seen since 11 May 2017, but no bearish divergence has been formed. These observations suggest that medium-term upside momentum is being overstretched but not showing any potential sign of abating which implies that the price actions of OCBC may stage a minor pull-back and thereafter resumes its potential medium-term impulsive up move sequence.
- Watch the 12.00 key medium-term pivotal support to maintain its potential bullish trajectory to retest close to its current all-time area of 14.04/14.07 (printed on 2 May 2018 & a cluster of Fibonacci expansion levels) and above it opens up scope for a test on 14.80 next (upper boundary of the ascending channel from 24 September 2020 low & 0.764 Fibonacci expansion of the current major up move from 23 March 2020 low to 10 May 2021 high projected from 1 December 2021 low).
- On the other hand, a break with a daily close below 12.00 invalidates the bullish scenario to kickstart a multi-month corrective decline phase towards the next supports at 11.30 and 9.95.