Singapore’s equity benchmark Straits Times Index is on track for a correction as heavyweight bank shares slide on concerns over the outlook for profits. The gauge fell as much as 1.5% on Wednesday, taking losses from its peak in September to 10%, a threshold commonly used to define a market correction. United Overseas Bank Ltd. tumbled as much as 7% after reporting third-quarter profit that missed expectations.
The city state’s lenders — which account for about 60% of the index — have retreated from record highs as surging bond yields cloud their earnings outlook. Wall Street brokers have warned of downside risks to third-quarter profits. "The selling has further to run," said Eric Xiao, Asia head of sales at CMC Markets Singapore. "The market has treated Singapore banks as a one-way bet: reliable dividends, solid capital, buy every dip," but bank earnings look to have peaked for now, he said. Prior to the recent slump, Singapore stocks had hit a string of highs as earnings growth and market stability attracted institutional investors seeking shelter from gyrations tied to the escalating Iran war and artificial intelligence trade.
Investors are now backing away, with analysts increasingly wary about expectations remaining too optimistic into year end. JPMorgan Chase & Co. earlier warned that rising long bond yields will result in high mark-to-market losses on banks’ trading books and hurt capital activity for Southeast Asian banks. Elevated bond yields are also eroding the appeal of banks’ dividend payouts.
Recent weakness suggests a reassessment of assumption that higher interest rates will automatically translate into stronger earnings. UOB reported a decline in trading and investment income as well as narrowing interest margin from higher deposit costs for the September quarter. DBS Group Holdings Ltd., Singapore’s largest lender, will publish its results on Nov. 5, followed by Oversea-Chinese Banking Corp. the day after.
To be sure, the US ten-year yields have retreated below 5%, easing some of the pressure, while Singapore’s growing stature as a global wealth hub continues to underpin the longer-term outlook for lenders. "Singapore bank stocks are increasingly vulnerable to profit-taking as investor expectations remain elevated," said James Ooi, chief market strategist at Tiger Brokers. Investors have become more cautious ahead of earnings and "the selloff may reflect growing anxiety that the numbers may disappoint.".
Source: Bloomberg Markets · Summarized by HeadlinesBriefing