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Stock Watch

Singapore banks rallied ahead of Q3 earnings

The big three Singapore listed banks will report their respective Q3 earnings results this week; United Overseas Bank, Oversea-Chinese Banking Corp on Wednesday, 3 November and lastly, DBS Group on Friday, 5 November.

Latest analyst’s earnings estimates compiled by Refinitiv as of Monday is rather rosy with United Overseas Bank’s expected net income to grow by +47.1% year-on-year to S$982.4 million, next in the pecking order will be DBS Group with an expected increase of +21.4% year-on-year to S$1.57 billion while growth of Oversea-Chinese Banking Corp’s net income is expected to shrink marginally to -0.45% year-on-year to S$1.02 billion.

Why the banks’ earnings matter?

Prior to the release of their upcoming respective Q3 earnings results, the share prices of United Overseas Bank and DBS Group have rallied in the past four weeks and hit new 52-week highs of 27.30 and 32.20 respectively based on today, 2 November intraday prices. Oversea-Chinese Banking Corp is trailing behind and based on today’s intraday price of 11.95, it is 6.9% away from its 52-week high of 12.77 printed on 10 May 2021.

Year to date, the share prices of all three banks have outperformed the benchmark Straits Times Index (STI) by a significant margin; DBS Group +28.15%, United Overseas Bank +20.85%, Oversea-Chinese Banking Corp +19% versus a gain of +13.55 seen on the Straits Times Index (see chart 1).

In addition, the combined market capitalisation weightage of the three banks is around 40% in the Straits Times Index, thus any significant movement in the share prices of the banks’ post earnings results may impact the directional movement of the Straits Times Index to a greater extend versus the movement of other component stocks.

Chart 1

Source: TradingView (click to enlarge chart)

Key factors to watch

  • Loans to private sector; as growth in bank lending has been robust since June. Bank loans in Singapore rose 1.7% month-on-month to a fresh record high of S$803.8 billion in September from S$ 790.1 billion in August according to data from TradingEconomics.com and Monetary Authority of Singapore.
  • Outlook on net interest margins is expected to remain under pressure as longer-term benchmark government sovereign bond yields have risen at a slower pace versus shorter- term bond yields in the past month; yield curve inversions can be seen across developed nations where their central banks are getting more hawkish to combat heightened inflationary pressures which in turn dampen longer-term economic growth outlook that causes the more sensitive longer dated sovereign bond yields to react negatively.
  • Loans exposure to China; indebted major Chinese property developer Evergrande has triggered a widespread contagion fear in the China economy due to its massive amount of liabilities that may cause a systematic breakdown in the financial system.

Chart Focus - United Overseas Bank

Bullish breakout from 6-month range

Source: CMC Markets (click to enlarge chart)
  • The share price of United Overseas Bank (UOB) has staged an intraday bullish breakout today, 2 November from a 6-month of range configuration in place since 30 April 2020 as well as the former medium-term swing high areas of November 2019/January 2020 now turns into an intermediate support at 26.90.
  • In addition, the daily RSI oscillator has shaped an earlier momentum bullish breakout on 13 October, and it continued to inch higher after a retest on its former corresponding resistance on 28 October. So far, it has not reached its prior extreme overbought level zone of 79%/88% which indicates that medium-term upside momentum remains intact, and it is not yet overstretched which may support further potential upside for its price actions.
  • If the 25.80 key medium-term pivotal support (also the 200-day moving average) holds, UOB may continue its bullish impulsive up move sequence towards the next resistance at 28.40/70 in the first step (the upper boundary of the major ascending channel from 23 March 2020 low & a cluster of Fibonacci expansion levels).
  • However, daily close below 25.80 invalidates the bullish scenario for a corrective decline towards the next support at 24.00 within its major uptrend phase in place since 23 March 2020 low.