A Note on Singapore Banks

During the start of the month, I shared my thoughts publicly on investing in the STI ETF vs Singapore Banks and made a case why it was better investing in Singapore Banks. For those who missed this piece, you may check it out here.

Recently, I shared my thoughts with Investor One, a subsidiary of ShareInvestor on my thoughts of 4 SGX-listed companies namely Singapore Banks, Yanlord Land, HongKong Land and Mapletree Industrial Trust. This piece can be found here. My thoughts on the Singapore Banks was an excerpt of a private note I shared with my InvestingNook Subscribers. I have decided to make it available to the public as I do believe that there are many good lessons to be learnt from it.

Start of the private note on Singapore Banks sent to InvestingNook Subscribers:

I have been beating my chest numerous times on this since 24th March 2020 on how I find the Singapore Banks to be a very compelling investment opportunity this year. I have written on this on my blog, given interviews on MoneyFM 89.3 and shared this with my InvestingNook ValueScreener members. Those interested to read/listen to it may check out the links below. 

Blog Article:Bullish on Singapore Banks, Above 6% Dividend Yield

MoneyFM 89.3 Interview:Safe to buy bank stocks now?

Since then, the share prices of our 3 local banks have rallied, where the capital gains on DBS is 20.8%, UOB is 15.1% and OCBC is 11.9%, not including the dividends that have gone XD.

When I wrote that article or shared my thoughts in that interview, I had no idea that prices would have rallied this much since then, but one thing I understood for sure was that the business fundamentals of our Singapore Banks are rock solid.

This is not to say that given the COVID-19 Pandemic, our local banks would not be facing a decline in earnings or rise in non-performing loans (NPLs) / bad debts. The outlook is definitely gloomy; however, our banks have fortress-like balance sheets since the Global Financial Crisis in 2008/09, providing me with the conviction that they will be able to ride out this storm and emerge even stronger.

Looking at the loan exposures of our local banks, more than 50% are from Singapore and of those, it mainly consists of home mortgages or construction loans. The property industry will remain resilient given how our Singapore Government have been regulating this sector with ABSDs, TDSR and many other cooling measures to ensure that there will be no hard landings when a crisis like this happens. 

Singapore’s Positive Outlook

Furthermore, earlier this week on 3rd June 2020, Bloomberg published an article on how someone made a huge bullish option bet on the Singapore ETF, where a total of 5,044 iShares MSCI Singapore ETF was placed compared to the 20-day average of 222. 

Singapore has been discussed as a potential beneficiary of China’s increasing moves on Hong Kong, with asset managers looking at opening offices in the city-state, Hong Kong parents eyeing Singapore schools and more. While the coronavirus may have affected these trends, China’s decision to impose new security legislation on the former British colony increases uncertainty about Hong Kong’s future and may boost the attractiveness of other hubs in Asia.

Those interested in reading the full article may check it out here. 

Singapore Banks Compelling Valuations

Prices of the banks have rallied somewhat since March; however, valuations are still compelling at current prices. DBS trades at 1.04x P/B, UOB at 0.97x P/B and OCBC at 0.84x P/B. If we compare this to its historical P/B valuations, DBS is trading close to its -1 SD, UOB and OCBC below its -1 SD.

To sum it off, I would like to share 2 quotes from a recent interview with Andrew Clifford of Platinum Asset Management.

“The core of what we do today is the same as what we were doing back then. It may have become more sophisticated, but essentially, it’s the same: opportunities are to be found in those parts of the market that others are avoiding and those places where change is happening. It’s about avoiding the crowd and looking in the neglected or unloved parts of the market.

If you have seven people in a room talking about a particular investment idea and everyone walks out thinking it’s a great idea, that’s a terrible idea. The good ideas should be uncomfortable. There should be something about them that’s stopping you from doing it and you have to get past whatever that is.“

Conclusion

Anyone investing money now would definitely be finding it emotionally difficult, especially with the current COVID-19 pandemic taking lives. However, investing in the midst of a crisis such as in 1997, 2000, 2001, 2008, it would have been uncomfortable and difficult but potentially rewarding.