Specifically for Singapore, JP Morgan points out that three-month Sora has fallen by 100 basis points (bps) in the last six months. “The Monetary Authority of Singapore targets nominal effective exchange rate (NEER), hence the domestic rates reflect weighted average cuts across trading partners. Singapore dollar depreciation can accelerate this trend,” JP Morgan says.
Interest rates are important for banks as they impact net interest margins, an important factor in banks’ net interest income. In an all round easier environment the offsets are wealth management, investment banking, equity capital markets, and debt capital markets. In all these non-interest income segments, DBS Group Holdings has the edge. All three banks could also experience better loan growth and asset quality in general.
JPM is reducing its price targets for the Singapore banks, “leading to limited upside for UOB” which has been downgraded to neutral.
JPM has reduced its earnings estimates for UOB in FY2025 to FY2027, with earnings per share (EPS) likely to decline by 2-4%, leading to lower ROE, and a lower price target. "This could lead to a period of range-bound performance for the stock," JPM says.
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DBS offers the highest dividend yields, generous capital management initiatives with a higher share buyback programme, JPM says. However, a key risk area for DBS could be commercial real estate (CRE), according to JPM. DBS has an exposure of $90 billion (21% of loans) to CRE, of which $18 billion is in Hong Kong (4% of loans). "Yet, if the bank is able to manage asset quality well over the course of 2025-26, the stock would continue to re-rate," JPM says.
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Elsehwere, CLSA says year-to-date, the Singapore market has seen net outflows of US$1.5 billion, led by the banks which experienced net outflows of $1.1 billion followed by the S-REITs of $422 million..
Among the other sectors, telcos have seen net inflows of $127 million YTD while industrial names have also seen a pick-up in flows in the past two weeks, CLSA says.
