S'pore banks' earnings growth, dividend yields attractive: UBS

Wealth manager says Reits look overpriced, with several trading at multi-year highs

Local bank stocks are starting to look more attractive at current levels while real estate investment trusts (Reits) are appearing overpriced, said UBS Global Wealth Management in its monthly report.

UBS, which had started the year "overweight" on banks and Reits, noted that the banking sector has underperformed while Reits have outperformed the benchmark index so far this year.

Evidence of earnings growth and return on equity expansion could support a re-rating of the banking sector, which is trading in line with its long-term average, the wealth manager added.

It said bank dividend yields were above market average and comparable with those of some Reits, in line with an OCBC Investment Research report that upgraded DBS to a "buy".

"We expect banks to deliver earnings growth on the back of resilient loan growth, stable asset quality and net interest margin expansion," said UBS.

Meanwhile, UBS said Reit valuations are "starting to look rich", with dividend yield one standard deviation below its long-term average and several Reits trading at multi-year highs.

UBS included local lenders among other Asian banks in the Asia ex-Japan equities asset class, citing "decent earnings growth and attractive dividend yields of 4 per cent to 6 per cent".

Companies that pay out high dividends are popular in Asia, given the region's attractive dividend yield of around 3 per cent and the recent performance of these companies.

Companies that pay out high dividends are popular in Asia, given the region's attractive dividend yield of around 3 per cent and the recent performance of these companies.

"The MSCI Asia ex-Japan High Dividend Yield Index has outperformed the broader MSCI Asia ex-Japan Index by 6 percentage points over the past year while achieving 35 per cent less drawdowns," UBS said.

Besides recommending banks in Singapore, China, Thailand, Indonesia and India for their dividend payouts, UBS also said select Taiwanese companies could benefit from the upcoming dividend season, where it "sees scope for higher payouts". Taiwanese petrochemicals, in particular, provide decent yields of around 4 per cent and are relatively more defensive, it said.

A version of this article appeared in the print edition of The Straits Times on June 26, 2019, with the headline 'S'pore banks' earnings growth, dividend yields attractive: UBS'. Print Edition | Subscribe