Record highs for Singapore banks test investor strategies
DBS, OCBC and UOB have surged to record valuations this year, forcing investors to choose between taking profits and holding for structural wealth management growth.
Singapore’s three largest lenders have surged to unprecedented valuations this year, leaving investors to weigh whether to lock in profits or hold for continued structural growth. DBS has climbed 27 per cent to trade around S$72, while OCBC has jumped 43 per cent to S$28 and UOB gained 20 per cent to exceed S$42.
The sharp rally has split market participants. Existing shareholders are debating whether to sell, while those on the sidelines are questioning if they have missed the opportunity. Analysts argue the choice should depend entirely on an investor's original rationale for holding the shares, rather than the current price tag.
“Tune out the price action and anchor on the objective,” said Glenn Thum, research manager at Phillip Securities Research. He noted that a bank offering a 5 to 6 per cent dividend yield and strong financial buffers does not automatically become a sell simply because it hits a record. “You exit when the earnings or dividend story breaks, not when the stock just feels expensive.”
The momentum has been partly driven by shifting interest rate expectations, as markets moved from pricing in cuts to anticipating stable or even higher rates. However, analysts point to wealth management as the more durable earnings driver. An RHB analyst highlighted robust first-quarter wealth fees, noting the sector should continue to underpin non-interest income. Eric Xiao, head of sales at CMC Markets Singapore, added that this diversification shields the lenders from geopolitical shocks. “Geopolitics moves oil, sentiment and the cost of risk. It does very little for a wealth franchise,” he said.
Despite the positive fundamentals, valuation risks are mounting. Kenneth Tang, deputy head of Asian equity at Amova Asset Management, warned that the banks are trading at historically lofty levels after running hard in the short term. Jayden Vantarakis, Macquarie Capital’s head of ASEAN equity research, flagged broader macroeconomic risks, noting that the sector remains highly sensitive to the overall growth environment, asset quality and lending demand.
For those considering new positions, stock selection requires nuance. RHB views DBS as a premium play with clear dividend visibility, while UOB is the cheapest option with weaker asset quality that could improve. OCBC is positioned as the middle ground, offering a robust balance sheet and solid wealth franchise at a reasonable valuation.
Investors must also guard against over-concentration. Mr Xiao cautioned that anyone holding a broad Straits Times Index ETF already has significant exposure to the three lenders, making direct purchases a doubling down rather than a diversification.
