Singapore bank stocks are at record highs. Should you buy, hold or sell?

SINGAPORE: Singapore bank stocks reached fresh records this month, leaving two groups of investors with a decision to make: those already holding the shares are weighing whether to take profits, while those without exposure are wondering if they have missed the boat.

DBS shares have risen more than 27 per cent this year and are trading around S$72 (US$56). OCBC has climbed over 43 per cent to around S$28, while UOB has gained 20 per cent to trade above S$42.

Analysts largely believe the three banks can continue to perform well and see share prices rise further over the long term.

The decision to buy or hold depends on each investor’s existing exposure, said Mr Kenneth Tang, deputy head of Asian equity at Amova Asset Management.

An investor already heavily invested in Singapore equities is “fairly positioned and riding this story” and probably should not put the next additional dollar into local banks, he said. But someone who bought in for the first time and had planned to add more shares should stick to that plan.

“I believe that this conviction that has led to the share price performing well is actually affirming my own investment thesis, and I should actually invest more because it is actually turning out to be right,” said Mr Tang.

Investors should also weigh the role the banks play in their portfolio, he said. Those holding the stocks mainly for dividend income should not be swayed by short-term price moves.

“I would not sell. I would just keep owning it because that’s really what I am supposed to do from an income point of view,” he said.

ANCHOR ON THE THESIS, NOT THE PRICE

Analysts said the key is to focus on why an investor believed in the stock in the first place, rather than react to price swings.

“Tune out the price action and anchor on the objective,” said Mr Glenn Thum, research manager at Phillip Securities Research.

A stock with the financial strength to absorb losses and an expected dividend yield of 5 to 6 per cent does not become a “sell” simply because it has hit a record, he said.

“The mistake in both directions is trading the chart rather than the thesis,” he said. “You exit when the earnings or dividend story breaks, not when the stock just feels expensive.”

Mr Eric Xiao, head of sales at CMC Markets Singapore, suggested a simple test: before buying, write down what would have to change about the business, not the price, for you to sell. That could be a dividend cut, bad loans rising past a certain threshold, or erosion of the company’s capital base.

“If you can’t say what would make you sell, you aren’t ready to buy,” he said.

“That one rule takes care of the FOMO buyer and the person itching to cash out, both at once,” he said, referring to the “fear of missing out”.

Mr Xiao also flagged the risk of over-concentration. Anyone holding an exchange-traded fund tracking the Straits Times Index already has exposure to DBS, OCBC and UOB, he noted.

“Buying the banks on top of that concentrates a bet you have already placed. Investors often reach for them, thinking they are doing the opposite,” he said.

EARNINGS LIKELY TO CONTINUE GROWING

The rally has been driven partly by shifting interest rate expectations, which moved from anticipated cuts to stabilising rates with the potential for a hike.

Higher rates typically benefit banks by widening the gap between what they earn on loans and what they pay on deposits.

But beyond the interest rate cycle, analysts are also confident in the banks’ growing wealth management business as a structural trend supporting earnings.

RHB’s research analyst cited robust wealth fees reported in the first quarter. “We are still positive on the outlook for wealth management activities, which should continue to help underpin non-II and operating income growth,” the analyst said, referring to non-interest income.

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