The Straits Times Index (STI) closed at 4,523 on Nov 28, up 54 points week-on-week. The index remains above its rising 50-day moving average at 4,425. During the easier phase both the 50-day moving average and a support area around 4,400 were able to stop the decline. Since ADX has eased towards the 20 level, which is a neutral level, and the DIs remain positively placed, the index has the potential to move higher. JP Morgan’s target of 5,000 may be attainable this year.
DBS at $70
When markets rise, it is natural for equity analysts to raise their forecasts, as equity analysts are intrinsically bullish. How much weight should we give forecasts such as STI at 10,000 or DBS at $70? The DBS at $70 target by end-2026 is more plausible than the SGD at parity with the USD, but it would look overvalued, especially if the book value lags.
JP Morgan’s $70 upside for DBS is a December 2026 target, and almost 30% higher than its current price. In a year, is that achievable? Probably. At the start of the year, DBS was around $43. Its low following Liberation Day was $37.16. JP Morgan argues that DBS has restructured its assets and liabilities towards a lower loan intensity. It is an institutional must-have which may make it overbought. If everyone has bought DBS who is there left to buy the stock?
Nonetheless, DBS has managed its book differently from other banks. In The Edge Singapore’s The CFO Interview with DBS’s group CFO, we learnt that DBS has focused on its corporate treasury function for balance sheet management. This included setting funds transfer pricing to incentivise the right types of assets and liabilities to be garnered, managing deployment of cash capital, and taking hedging decisions to manage interest rate sensitivity. With funds transfer pricing, surplus deposits can deployed more efficiently, into longer-term products. DBS invested in data and analytics to manage the bank’s interest rate sensitivity, lowering sensitivity to interest rates as Sora fell this year.
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“You want your sensitivity to be higher as rates are going up because you want to benefit. When rates are going down, the balance sheet has to be positioned differently. You want to lower your sensitivity as rates are coming down. In 2025, we changed our guidance because the relationship between the Federal funds rate and Sora had broken down. We are not guiding to the overall sensitivity in 2025. We should look at sensitivity in currency blocks and from there, the impact on net interest income,” DBS group CFO Chng Sok Hui had said.
During a results briefing on Nov 6, group CEO Tan Su Shan had said: “On NII sensitivity, for the SGD book we have a net floating asset position of about $110-120 billion, so for every one-basis-point decline in SGD rates we lose $11-12 million of NII. This could rise to $160 billion of net floating assets in 2026 depending on Casa inflow and whether we replace fixed rate maturities. For the USD book, we have a net floating liability position of about $50 billion, so for every one-basis-point drop in USD rates, we gain $5 million of NII.”
At the same briefing, Chng had explained “You should think about the NII as having three components. The floating rate book where we have shared the sensitivity, fixed-rate book which gradually comes off and deposit inflow that we can deploy at slightly more than 1%. That deployment cushions the effects of the lower rates.”
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In the meantime, fee income and treasury income can offset some of the decline in net interest income. All this ensures a stable, growing income and PPOP (pre provisioning operating profit).
At its current book value of $24.28 (as of Sept 30), DBS’s price to book is at 2.32 times. JP Morgan has hinted at DBS becoming overvalued at $70, which it would be at its current book value. If the book value rises to $28 (by profit accretion), and stock prices rise to $65 by the end of next year, that would see DBS at around its current valuation, and not an impossible ask.
