Although the wealth management structural story is intact, analysts and strategists including Modi expect the recent policy moves in China to lead to slower net new money growth in 2027 "and onward".
On the flip side, in Singapore, interest rates may have bottomed, with three-month compounded Sora finding a floor at just above 1%, he suggests. Three-month Sora is at 1.06% as at June 10. Although Singapore rates have decoupled somewhat from US rates, Sora also depends on flows into Singapore and SGD appreciation (to combat inflation).
On asset quality, Modi reckons emerging market Asean exposure is a source of small but incremental risk as well as parts of the portfolio which could be impacted by energy prices.
As a recap, China's State Council Order No. 837 (effective July 1) significantly tightens oversight of outbound investments, explicitly including high-net-worth individuals. It has broadened the definition of “outbound investment”, subjects individuals to national security reviews, and imposes penalties for opaque or non-compliant wealth-transfer structures.
See also: CGS International maintains 'add' call on Sembcorp with target price of $7.68
Modi says the definition of "Chinese Mainland Residents" (CMR) appears broader "than our understanding of market consensus". The possibility of higher filing requirements for CMRs, potentially including existing funds is likely, he warns.
In addition, there could be a limited possibility of a relaxation of the prohibition on the use of RMB-converted funds for investment purposes.
Nearly 30% of NNM over the last few quarters at DBS has come from China nationals, Modi says, citing DBS. "We assume a similar mix across the three Singapore banks and expect NNMg to be steady this year, as some of the fund flow may accelerate in anticipation of stricter requirements. But we reduce our AUM growth forecasts for 2027 and 2028 to 5-8%."
See also: Broker's Digest: Tai Sin, OKP Holdings, CDL, Food Empire, Pan-United, Sanli Environmental, Sembcorp
As at June 10, Fed fund futures for Jan 2027 is pricing in around 1.28 hikes compared with two cuts earlier this year.
For DBS, higher Fed rates could lead to lower net interest income (NII) as every basis point increase in Sofr leads to a $4 million decline in NII on an annual basis due to hedges. "We expect a limited direct impact for UOB and OCBC," says Modi.
Nonetheless, to the extent higher Fed rates lead to higher Sora, it is positive for NII and pretax profit for the local banks with a 1.4% to 2.1% lift in NII for every 25 bps. Hibor moves tend to have a relatively smaller impact on NII/NIM for OCBC and DBS, as they have close to matched asset-liability management in Hong Kong due to their retail presence.
In addition to rates, strengthening Sora is negatively correlated to better flows into Singapore. However, if the SGD strengthens amid better flows, it could lead to lower pressure on Sora. "Tying it all together, weaker flows and a firmer SGD would be best for Sora/banks’ NIM and vice versa," says Modi.
Finally, the potential for banks to return capital in the next few years may be less of a catalyst for banks. OCBC and UOB have clearly stated that their payout ratios are 50%. DBS could announce a six cents increase in quarterly dividend per share in 4Q2026.
Both DBS and OCBC have said that the unused portion of their share buybacks will be distributed to shareholders. The remaining amount for OCBC is $780 million, or 17 cents per share. "Given that most of the capital management is done or discounted, the stocks are not necessarily moving as much on small dividend yield differentials," Modi says.
As such, he has downgraded DBS to "neutral", and kept his underweight ratings for OCBC and UOB. "The performance, multiples and possibility of a stall in earnings per share (EPS) revisions limit near-term upside for DBS, in our view, while opening downside for OCBC. We remain cautious on UOB in the medium term, as the bank has lagged peers in wealth management," warns Modi.
For more stories about where money flows, click here for Capital Section
His 12-month targets for DBS, OCBC and UOB are $64, $20 and $35 respectively, compared to $63.76, $23.8 and $38.38 on June 9.
UOB Kay Hian says weak IDR, INR to affect DBS
In a report also dated June 10, UOB Kay Hian's Jonathan Koh points to the weakness in the Indonesian Rupiah (IDR) and Indian Rupee (INR) having an impact on DBS as these two geographies accounted for 7.4% of total income in 2025.
"OCBC and UOB have exposures to IDR, which accounted for 7.2% and 4.6% of total income in 2025 respectively. For OCBC and UOB, weakness in the IDR is partially offset by the strength of the Malaysian Ringgit (MYR), which appreciated 1.6% against the SGD during the first five months of 2026, Malaysia is more sizeable and accounted for 12.7% and 12.0% respectively of OCBC’s and UOB’s total income in 2025," says Koh.
Besides the energy shock, the IDR is affected by concerns over President Prabowo’s populist spending programmes, including free nutritious meals for school children. "Investors have also lost confidence following the MSCI quarterly review, which led to six major companies being dropped from the MSCI Indonesia Global Standard Index effective May 29," he adds.
However, Koh has maintained his "buy" ratings for DBS and OCBC, given how they are deemed "attractive yield plays" given the current low interest rate environment in Singapore.
"The sustainability of their dividend payout is supported by resilient earnings, strong capital adequacy and discipline in capital management. DBS provides a higher yield spread of 3.0%, compared to 1.5% for OCBC," says Koh, referring to the yield differentials with the local risk-free rate. His 12-month targets for DBS and OCBC are $65.20 and $26.80 respectively.
