Weary investors turn to Singapore banks as outlook dims for other sectors

Banking stocks are expected to rally.

Funds are expected to flow to Singapore’s three biggest banks as weary investors turn away from battered sectors such as oil and gas, telecommunications, and property development.

According to Maybank Kim Eng, investors should turn to Singaproe bank stocks as the sector stands to benefit from rising interest rates and strengthening fundamentals.

“A shift in bets to banks from oil & gas. As the outlook for oil & gas dims, we expect funds to be reallocated to banks. This would in part reflect a dearth of catalysts for the other key sectors such as property and telcos,” noted the report.

Here’s more from Maybank Kim Eng:

Their brightening earnings outlook. In our view, the market has not fully appreciated the prospect and impact of higher interest rates. Our house expects the 3-month SGD SIBOR to rise to 1.0% by end-2015 from 0.4%, before a further improvement to 2.0% by end-2016.

This should pave the way for a meaningful earnings rebound starting FY16E. We expect banking stocks to rally on signs of the interest-rate uptrend. 

Banks outperformed FSSTI. After three quarters of positive earnings surprises, Singapore banks have outperformed FSSTI by 3ppts. Of the three, DBS has done the best, followed by UOB and OCBC.

Despite persistently depressed interest rates, NIMs have been climbing since early this year. Industry NIM reached 1.69% in 3Q14, 4bps above its trough in 3Q13. This provides some comfort that industry NIM has troughed and the NIM-induced profitability drag is over.