OCBC owns 10% of China's Ningbo Commercial
ARE LISTED banks in Singapore the safest havens for now?
A piece in the PRC press seems to think so.
The Singapore exchange lost 1.8% in the first half, and while that is much better than China’s capital market which has fallen nearly 30% so far this year, the Singapore Stock Exchange has still managed to exhibit the worst performance in Southeast Asia over the period.
The Chinese language article in LiCai18.com (Asset Management Online) mentions local notable financial institutions including OCBC and UOBH as evidencing a recent resurgence.
"Banking stocks have been one of the few rally stories on the Singapore bourse of late, mainly due to optimism regarding a raft of interim announcements expected from listed lenders soon, including OCBC and UOBH," the piece stated.
As evidence of expected financial health driving financial counters, it pointed to a single recent trading day during which OCBC closed up 1.5%, DBSM was up nearly a full percent, and UOBH climbed by 0.5%, which buoyed the overall Index by 1% on the day.
"Investors have been encouraged recently by the strong bills of health likely to come from listed lenders," it said.
The report cited a market watcher as saying that price-to-earnings ratios in the single digits or teens which characterize many listed firms in Singapore these past few months may soon be a thing of the past, but how soon is still an unknown.
"It will be hard for the market to stay at these levels in the second half," the analyst said.
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UOB Kay Hian issued its assessment of the safest bets in the market going forward, and banks ranked high on the list.
"Equity markets are likely to be mixed in the second half as investors grapple with mixed newsflow from the euro debt concerns, gradual appreciation of China's renminbi (vs the US dollar) and lower economic growth from fiscal tightening. We favor banks, office property and telcos," UOB said in the note to investors.
It added that one of its "top picks" is Singaporean lender OCBC, whose P/E ratio was still hovering in single digit territory.
Though based in Singapore, Oversea-Chinese Banking Corporation (OCBC) does have heavy exposure to China, as its name would suggest.
The Singapore-listed lender has a 10% stake in both China's Ningbo Commercial Bank and Vietnam's VP Bank.
UOB said it expects OCBC’s sustainable growth to be driven by overseas markets.
"Management guided low double-digit loan growth for 2010 on an organic basis, excluding the impact from the Bank of Singapore (BOS), led by expansion in Malaysia, Indonesia and China. Management expects growth in Indonesia and China to exceed 20%,” it said.
It has a “BUY” call on OCBC.
"Our target price of 12.38 sgd is based on P/B of 2.16x, derived from the Gordon Growth Model (ROE: 12%, required return: 8.1% and constant growth: 4.75%),” it added.
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