Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

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Bank stocks were among the strongest industries of the global stock market in 1H21, outpacing broad global benchmarks, alongside the iron and steel, semiconductor and O&amp;G service industries. DBS, OCBC and UOB averaged 19.0% total returns over the six months, in-line with the largest global banks by market value. 
	 </li>
	<li>
While DBS, OCBC and UOB were recipient to net institutional and net proprietary inflows of S$1.39 billion in 1Q21 and S$468 million in 2Q21, endemic developments, varying outlooks for growth, inflation and monetary policy saw frequent rotation of net inflows to net outflows, and vice-versa, in 1H21.  
	 </li>
	<li>Both short term upswings and downswings have placed the FTSE ST Banks Index 5-day Volatility at highest levels in more than six month. As economies draw closer to normalisation in 2H21, recurring rotations are expected to continue, with investors assessing the daily inroads to ‘substantial progress’ and effects on accommodative policies.</li>
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Banks Among the Strongest Industries in 1H21 
Bank stocks were among the strongest industries of the global stock market in 1H21, outpacing broad global benchmarks, along with iron and steel, semiconductor and the Oil &amp; Gas service industries. 
Globally bank stocks were supported by resilient global investing, with expansionary monetary policies supporting stocks and businesses, particularly those stocks that facilitate banking and investing activity. Another driver of the 1H21 outperformance was the 2/10 US Yield curve averaging 130bps in 1H21 compared to 60 bps in the preceding 2H20, with banks generally known to borrow short and lend long. DBS Group Holdings (“DBS”), Oversea-Chinese Banking Corp (“OCBC”) and United Overseas Bank (“UOB”) were recipient to net institutional and net proprietary inflows of S$1.39 billion in 1Q21 and S$468 million in 2Q21. The trio averaged a 19.0% total return in 1H21, in-line with the median 19.8% return for the 200 largest listed global banks by market value. At the same time the average recovery in price-to-book (“P/B”) ratios has been almost identical to the top quartile of global banks by market value. 
As illustrated below, there has been significant correlation in the performances of DBS, OCBC and UOB and the top quartile of global banks by market value.
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-07/Capture_4.PNG' alt='Comparative Total Returns' />
 </figure>
 <div class='content-caption'>Comparative Total Returns</div>
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<html><body>The trio of DBS, OCBC and UOB have consistently reported more than S$5.0 billion in combined quarterly net interest income for the past three years. For its 1QFY21 (ended 31 Mar), DBS’ quarterly net profit crossed S$2 billion for the first time in its history, maintained by the bank to be underpinned by strong business momentum and stabilising asset quality. OCBC noted its 1QFY21 (ended 31 Mar) saw a robust set of results, underscored by the strength and resilience of its banking, wealth management and insurance franchise. UOB highlighted its 1QFY21 (ended 31 Mar) saw a solid rebound in results, on the back of broad-based growth across the diversified franchise. For the year ahead, the combined focus of the trio include increased digitalisation, broadening wealth management services, and a continued focus on supply chains and growth markets.</body></html>

<figure>
 <img src='https://api2.sgx.com/sites/default/files/2021-07/Capture_5.PNG' alt='Combined Quarterly Net Interest Income, SORA' />
 </figure>
 <div class='content-caption'>Combined Quarterly Net Interest Income, SORA</div>
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While the Singapore banks average a 15% premium to their book value, their P/B’s remain well off the 40% premium observed back in April/May 2018. For those P/B’s to be around the 1.40x level again, much will depend on the economy as did the valuations in 2017 which saw Singapore among the strongest advanced economies across the globe that year, and also home to one of the strongest performing stock markets across the globe for that year. Eventual Monetary Policy Normalisation Provides Potential for More Swerves and Curves in 2H21 
The short-term volatility of DBS, OCBC and UOB as gauged through the short-term 5-day historical volatility of the FTSE ST Banks Index has consistently gyrated between near 30% highs and 5% lows throughout 1H21. This has provided for more short-term trading activity, and stock rotations.  As detailed in the June 15-16 <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20210707a.htm">Minutes</a> of the Federal Open Market Committee (“FOMC”), participants had diverse views on the economic outlook, particularly in terms of growth and inflation. Following the meeting, the Fed Chair made a point of noting that dot plots are the result of ‘individual projections, not a Committee forecast’ and ‘not a plan’. Nevertheless, the different expectations of the FOMC Committee Members, current and future Alternate Members have the potential to provide for increased volatility in both yield curves and the global banks sector. Furthermore, Fed members may seek more airtime to share their individual outlooks given that the Fed Chair has made a commitment to provide as much transparency on tapering that it can give and as far in advance as possible to give the market a chance to adjust their expectations. 
The dot plot surprise in the 15-16 June Federal Open Market Committee (“FOMC”) saw seven of 18 members expecting a rate increase in 2022, moving the yields on 2-year UST from 0.16% to 0.26% (which have since returned to 0.21%). Between 16 June and 29 June, the 2/10 US yield curve flattened from ~135 bps to ~120 bps. With added hawkish comments by Fed members, the week through 23 June, EPFR Global saw the largest outflow for financials since March 2020. Between 16 June and 29 June, DBS, OCBC and UOB saw close to S$350 million of net institutional and net proprietary outflow, averaging a 3.1% decline. The next session, saw end of quarter balancing indicate institutional investors had broadly added to their Singapore exposures, with the trio averaging a 2.0% gain with more than S$60 million of net institutional and net proprietary inflow. This served a timely reminder that the local economic outlook and portfolio country weightings are also key drivers of DBS, OCBC and UOB, which are also the three largest <a href="https://research.ftserussell.com/analytics/factsheets/Home/DownloadConstituentsWeights/?indexdetails=STI&amp;_ga=2.91666397.671895857.1625731587-875071171.1608699665">weightings</a> of the STI. The greater amplitude in price swings has seen the short term 5-day historical volatility of the FTSE ST Banks Index increase to above 30%, its highest level in more than six months, and up from the 14% average over 1H21. 2H21 Sees Daily Trading Activity in DBS Shares Up 6% from 1H21 
In the month of July through to 8 July, DBS shares have seen increased turnover, contributing 57% of the combined S$256 million in average daily turnover of the bank trio, with the difference evenly divided between OCBC and UOB. This compares to DBS comprising 49% of the combined S$278 million average daily turnover of the trio in 1H21, with the difference again evenly divided between OCBC and UOB. Over the first six sessions of July, DBS average daily trading turnover was S$144 million, compared to S$136 million in 1H21. As detailed in the table below, the average intraday trading range of DBS in the first sessions of 2H21 was 47 cents.

<table class="table table-striped"><tbody>
<tr>
<td>
			Stock
			</td>
			<td>
			Code
			</td>
			<td>
			Mkt CAP S$M
			</td>
			<td>
			Average Intraday Trading Range in July MTD
			</td>
			<td>
			Net Insti &amp; Net Prop Inflow S$M YTD
			</td>
			<td>
			52 Week High
			</td>
			<td>
			52 week Low
			</td>
			<td>
			5 Day Vol %
			</td>
			<td>
			30 Day Vol %
			</td>
			<td>
			180 Day Vol %
			</td>
			<td>
			Total Return YTD% 
			</td>
		</tr>
<tr>
<td>
			DBS
			</td>
			<td>
			D05
			</td>
			<td>
			75,864
			</td>
			<td>
			S$0.47
			</td>
			<td>
			1,073
			</td>
			<td>
			$30.88
			</td>
			<td>
			$19.45
			</td>
			<td>
			39
			</td>
			<td>
			19
			</td>
			<td>
			21
			</td>
			<td>
			        19
			</td>
		</tr>
<tr>
<td>
			OCBC
			</td>
			<td>
			O39
			</td>
			<td>
			52,887
			</td>
			<td>
			S$0.18
			</td>
			<td>
			483
			</td>
			<td>
			$12.77
			</td>
			<td>
			$8.36
			</td>
			<td>
			34
			</td>
			<td>
			18
			</td>
			<td>
			18
			</td>
			<td>
			         18
			</td>
		</tr>
<tr>
<td>
			UOB
			</td>
			<td>
			U11
			</td>
			<td>
			42,895
			</td>
			<td>
			S$0.35
			</td>
			<td>
			305
			</td>
			<td>
			$26.84
			</td>
			<td>
			$18.85
			</td>
			<td>
			25
			</td>
			<td>
			13
			</td>
			<td>
			16
			</td>
			<td>
			        15
			</td>
		</tr>
<tr>
<td>
			Average
			</td>
			<td> </td>
			<td> </td>
			<td>
			 
			</td>
			<td> </td>
			<td> </td>
			<td> </td>
			<td>
			33
			</td>
			<td>
			17
			</td>
			<td>
			19
			</td>
			<td>
			         18 
			</td>
		</tr>
<tr>
<td>
			Total
			</td>
			<td> </td>
			<td>
			171,645
			</td>
			<td>
			 
			</td>
			<td>
			1,860
			</td>
			<td>
			 
			</td>
			<td>
			 
			</td>
			<td> </td>
			<td> </td>
			<td> </td>
			<td>
			 
			</td>
		</tr>
</tbody></table>
 Source: SGX, Bloomberg, Reuters (Data as of 8 July 2021)

 

While DBS, OCBC and UOB trimmed FY20 dividends to 60 per cent of FY19 levels to bolster ability to serve credit needs and absorb potential shocks, DBS, OCBC and UOB also remain amongst the top ten constituents of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index. Global Finance Magazine also ranked the three banks Asia’s safest banks again for 2020. The table below, details the recent performances of the three banks. OCBC and UOB will both report 1HFY21 results before the market open on 4 August, while DBS will <a href="https://www.dbs.com/investors/events-and-presentations/default.page">report</a> on 5 August.
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Bank stocks were among the strongest industries of the global stock market in 1H21, outpacing broad global benchmarks, alongside the iron and steel, semiconductor and O&amp;G service industries. DBS, OCBC and UOB averaged 19.0% total returns over the six months, in-line with the largest global banks by market value. 
	 
	
While DBS, OCBC and UOB were recipient to net institutional and net proprietary inflows of S$1.39 billion in 1Q21 and S$468 million in 2Q21, endemic developments, varying outlooks for growth, inflation and monetary policy saw frequent rotation of net inflows to net outflows, and vice-versa, in 1H21.   
	 
	Both short term upswings and downswings have placed the FTSE ST Banks Index 5-day Volatility at highest levels in more than six month. As economies draw closer to normalisation in 2H21, recurring rotations are expected to continue, with investors assessing the daily inroads to ‘substantial progress’ and effects on accommodative policies.

 

Banks Among the Strongest Industries in 1H21   
Bank stocks were among the strongest industries of the global stock market in 1H21, outpacing broad global benchmarks, along with iron and steel, semiconductor and the Oil &amp; Gas service industries.  
Globally bank stocks were supported by resilient global investing, with expansionary monetary policies supporting stocks and businesses, particularly those stocks that facilitate banking and investing activity. Another driver of the 1H21 outperformance was the 2/10 US Yield curve averaging 130bps in 1H21 compared to 60 bps in the preceding 2H20, with banks generally known to borrow short and lend long.  DBS Group Holdings (“DBS”), Oversea-Chinese Banking Corp (“OCBC”) and United Overseas Bank (“UOB”) were recipient to net institutional and net proprietary inflows of S$1.39 billion in 1Q21 and S$468 million in 2Q21. The trio averaged a 19.0% total return in 1H21, in-line with the median 19.8% return for the 200 largest listed global banks by market value. At the same time the average recovery in price-to-book (“P/B”) ratios has been almost identical to the top quartile of global banks by market value.   
As illustrated below, there has been significant correlation in the performances of DBS, OCBC and UOB and the top quartile of global banks by market value.



      
    
    Comparative Total Returns

The trio of DBS, OCBC and UOB have consistently reported more than S$5.0 billion in combined quarterly net interest income for the past three years. For its 1QFY21 (ended 31 Mar), DBS’ quarterly net profit crossed S$2 billion for the first time in its history, maintained by the bank to be underpinned by strong business momentum and stabilising asset quality. OCBC noted its 1QFY21 (ended 31 Mar) saw a robust set of results, underscored by the strength and resilience of its banking, wealth management and insurance franchise. UOB highlighted its 1QFY21 (ended 31 Mar) saw a solid rebound in results, on the back of broad-based growth across the diversified franchise.  For the year ahead, the combined focus of the trio include increased digitalisation, broadening wealth management services, and a continued focus on supply chains and growth markets.


      
    
    Combined Quarterly Net Interest Income, SORA


While the Singapore banks average a 15% premium to their book value, their P/B’s remain well off the 40% premium observed back in April/May 2018. For those P/B’s to be around the 1.40x level again, much will depend on the economy as did the valuations in 2017 which saw Singapore among the strongest advanced economies across the globe that year, and also home to one of the strongest performing stock markets across the globe for that year.  Eventual Monetary Policy Normalisation Provides Potential for More Swerves and Curves in 2H21  
The short-term volatility of DBS, OCBC and UOB as gauged through the short-term 5-day historical volatility of the FTSE ST Banks Index has consistently gyrated between near 30% highs and 5% lows throughout 1H21. This has provided for more short-term trading activity, and stock rotations.   As detailed in the June 15-16 Minutes of the Federal Open Market Committee (“FOMC”), participants had diverse views on the economic outlook, particularly in terms of growth and inflation. Following the meeting, the Fed Chair made a point of noting that dot plots are the result of ‘individual projections, not a Committee forecast’ and ‘not a plan’. Nevertheless, the different expectations of the FOMC Committee Members, current and future Alternate Members have the potential to provide for increased volatility in both yield curves and the global banks sector. Furthermore, Fed members may seek more airtime to share their individual outlooks given that the Fed Chair has made a commitment to provide as much transparency on tapering that it can give and as far in advance as possible to give the market a chance to adjust their expectations.  
The dot plot surprise in the 15-16 June Federal Open Market Committee (“FOMC”) saw seven of 18 members expecting a rate increase in 2022, moving the yields on 2-year UST from 0.16% to 0.26% (which have since returned to 0.21%). Between 16 June and 29 June, the 2/10 US yield curve flattened from ~135 bps to ~120 bps. With added hawkish comments by Fed members, the week through 23 June, EPFR Global saw the largest outflow for financials since March 2020. Between 16 June and 29 June, DBS, OCBC and UOB saw close to S$350 million of net institutional and net proprietary outflow, averaging a 3.1% decline. The next session, saw end of quarter balancing indicate institutional investors had broadly added to their Singapore exposures, with the trio averaging a 2.0% gain with more than S$60 million of net institutional and net proprietary inflow. This served a timely reminder that the local economic outlook and portfolio country weightings are also key drivers of DBS, OCBC and UOB, which are also the three largest weightings of the STI. The greater amplitude in price swings has seen the short term 5-day historical volatility of the FTSE ST Banks Index increase to above 30%, its highest level in more than six months, and up from the 14% average over 1H21.  2H21 Sees Daily Trading Activity in DBS Shares Up 6% from 1H21  
In the month of July through to 8 July, DBS shares have seen increased turnover, contributing 57% of the combined S$256 million in average daily turnover of the bank trio, with the difference evenly divided between OCBC and UOB. This compares to DBS comprising 49% of the combined S$278 million average daily turnover of the trio in 1H21, with the difference again evenly divided between OCBC and UOB. Over the first six sessions of July, DBS average daily trading turnover was S$144 million, compared to S$136 million in 1H21. As detailed in the table below, the average intraday trading range of DBS in the first sessions of 2H21 was 47 cents.




			Stock
			
			
			Code
			
			
			Mkt CAP S$M
			
			
			Average Intraday Trading Range in July MTD
			
			
			Net Insti &amp; Net Prop Inflow S$M YTD
			
			
			52 Week High
			
			
			52 week Low
			
			
			5 Day Vol %
			
			
			30 Day Vol %
			
			
			180 Day Vol %
			
			
			Total Return YTD% 
			
		


			DBS
			
			
			D05
			
			
			75,864
			
			
			S$0.47
			
			
			1,073
			
			
			$30.88
			
			
			$19.45
			
			
			39
			
			
			19
			
			
			21
			
			
			        19
			
		


			OCBC
			
			
			O39
			
			
			52,887
			
			
			S$0.18
			
			
			483
			
			
			$12.77
			
			
			$8.36
			
			
			34
			
			
			18
			
			
			18
			
			
			         18
			
		


			UOB
			
			
			U11
			
			
			42,895
			
			
			S$0.35
			
			
			305
			
			
			$26.84
			
			
			$18.85
			
			
			25
			
			
			13
			
			
			16
			
			
			        15
			
		


			Average
			
			 
			 
			
			 
			
			 
			 
			 
			
			33
			
			
			17
			
			
			19
			
			
			         18 
			
		


			Total
			
			 
			
			171,645
			
			
			 
			
			
			1,860
			
			
			 
			
			
			 
			
			 
			 
			 
			
			 
			
		

 Source: SGX, Bloomberg, Reuters (Data as of 8 July 2021)

 

While DBS, OCBC and UOB trimmed FY20 dividends to 60 per cent of FY19 levels to bolster ability to serve credit needs and absorb potential shocks, DBS, OCBC and UOB also remain amongst the top ten constituents of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index. Global Finance Magazine also ranked the three banks Asia’s safest banks again for 2020. The table below, details the recent performances of the three banks.  OCBC and UOB will both report 1HFY21 results before the market open on 4 August, while DBS will report on 5 August.



Bank Sector Outpaced in 1H21, Potential for Frequent Rotations in 2H21 