Singapore stocks had been climbing to a string of highs as solid earnings and a steady market drew institutions looking for calm amid choppy trading linked to the worsening Iran conflict and the AI theme. That tailwind faded, and the Straits Times Index has now slipped 6.6% from its recent top, with bank shares doing most of the damage.
DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. together carry more than half the weight of the benchmark. The trio shed $22.4 billion in market cap last week as investors fretted about a tougher stretch ahead. Higher bond yields are dulling the shine of dividend payouts, and lenders also face losses they must recognize on securities they hold. That combination has Wall Street brokers flagging downside risks to results set to land next month.
Bank-heavy indices move on credit expectations more than on growth. Market Briefs covers that link free every morning.
JPMorgan Chase & Co. said Wednesday that a climb in long-term yields is likely to trigger sizable mark to market hits on banks' trading books and curb capital activity for Southeast Asian lenders. In a separate move, Citigroup Inc. cut OCBC to a sell rating and, last week, reaffirmed its sell stance on UOB. HSBC Holdings Plc. meanwhile shifted its call on Singapore equities to neutral, citing stretched valuations and tighter financial conditions pressuring property.
A powerful run earlier this year left Singapore bank stocks looking expensive versus peers. Even after the pullback, DBS still changes hands at 16.9 times projected earnings for the next 12 months, compared with 13.2 times for the MSCI financials index. Not everyone is throwing in the towel, though. Some strategists point to Singapore's growth outlook and the government's push to revitalize the equity market as potential shock absorbers for further downside. Alex Ho of CMC Markets Singapore, who works as a sales trader, said, "The risk is a longer selloff that spreads beyond the banks, or earnings and capital returns that start to weaken." And as Julius Baer's Jen-Ai Chua put it, "Critically, there are still no overtly concerning signs of bad debt, which tend to characterize bear markets for the banks, while loan growth is relatively healthy," adding, "As we enter the traditionally turbulent month of October, the only thing we can be sure of is more volatility in price action ahead."
A sharp drawdown in lenders usually leads the broader market. Get the free Market Briefs daily newsletter and follow it.
