Citi turns 'sell' call on Singapore banks to 'buy'
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One of the rare "sell" calls on Singapore banks has returned to the herd, as Citi Research yesterday upgraded its call on the sector to a "buy". The bank brokerage said the markets may be pricing in a V-shaped recovery next year.
"Despite multiple concerns over Singapore's economy and likely dire 2020 expected profits, markets may price a V-shaped recovery in 2021, (with) banks seen as a proxy," said analyst Robert Kong.
He raised the target price for OCBC Bank to $10.85, up 40 per cent from $7.75 previously. The target price for United Overseas Bank (UOB) was raised to $25, up 39 per cent from $18, while that for DBS Bank was raised to $25.50, up 29.8 per cent from $19.65.
Shares of Singapore banks trad ed higher yesterday. At the trading lunch break, DBS was up 42 cents to $22.70, OCBC saw a 19-cent rise to $9.63 and UOB was up 48 cents to $22.48.
Mr Kong referred to the views of Citi economists in the United States, who said that rising long-term interest rates and a weakening greenback are signalling that earlier forecasts for the strength of the post-Covid-19 recovery have been "too pessimistic". They added that "ample liquidity from the US Federal Reserve will prevent a financial crisis".
To be sure, Mr Kong said Singapore banks' earnings in the second quarter of this year are likely to show the "true weakness of the lockdown period", citing soft loan growth, collapses in net interest margins and weak fees. Singapore banks are also facing a lower-for-longer rates environment.
Mr Kong noted as well that there will be "lasting damage" to some segments of the economy as banks continue to shore up provisions in anticipation of rising non-performing loans. Singapore's economic recovery could also prove "more fragile than markets expect", while another wave of infections could lead to more lockdowns.
Citi previously downgraded Singapore banks to "sell" in March. Bloomberg data yesterday showed that most analysts are taking "hold" or "buy" calls on Singapore banks, with "hold" calls just edging higher in numbers for now.
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