OCBC: A Good Catch For Short-Term Rebound?

Last week, I talked about the  3 Things You Should Spot On STI Chart. I mentioned about lower highs and lower lows on the Straits Times Index (STI). The chart is actually showing us a lot of signs that the market is likely heading towards a bear market.

Chart On The Straits Times Index

However, as the Syria worries slowly disperse, I see that the STI has also slowly recovered from the selling fever. Technically, the STI has hit the 3,000 point critical support and starting to have a bounce. So what stock can we look at right now?

Chart On Oversea-Chinese Banking Corporation

As the overall trend is still downwards, we will need to look for some good companies that are outperforming the STI. As a STI constituent stock, OCBC has stopped dropping seven days ago where the lowest it hit was $9.81. Comparing with the STI during this period, the STI continued to drop for another 100 points. Hence, I see that there might be some accumulation in OCBC during this period. As market is unpredictable, a stop-loss below the support at $9.80 is always a good practice.  ...last: $9.93...

Posted by Andy Yew

DBS Vickers is raising Singapore banks to overweight, both within the Singapore context and among its Asean banks coverage, due to improved prospects.

?Besides improved prospects in 2014 coupled with possible interest rate hikes, we believe Singapore banks provide a flight-to-safety theme in the near term, especially when compared with its Asean counterparts. We have imputed Net Interest Margin (NIM) recovery and stronger earnings growth for 2014. 2013 earnings will be subdued on flat NIM and normalised provisions,? says analyst Lim Sue Lin in a DBSVO Clarity email blast on Aug 20.

DBS Vickers says NIM has finally started to stabilise, as evidenced in the recent set of 2Q13 results for the three banks. ?NIM pressure appears to be well combated. Banks have started to price up loans. As such, banks with higher CASA (Current Account, Savings Account) composition as well as better S$ liquidity should be well positioned.

?We believe  OCBC  is in a better position (vs  UOB) given that its S$ loan-to-deposit ratio is 84% (UOB: 95%) while its CASA to total deposits stands at 50% (UOB: 42%),? says Lim.

Although DBS Vickers says the days of extra-low provision cycle are over, it believes the asset quality of Singapore banks is the best among Asean peers. Nevertheless, unemployment rates should be watched closely to detect asset quality issues, it is equally crucial to monitor job creation. While unemployment rate has inched up to 2.1% from 1.9% in 1Q13, job creation has increased significantly. Hence, risk to a NPL spike should be limited at this juncture.

DBS Vickers prefers OCBC from a contrarian view. Despite weak contribution from insurance in 2Q13, its banking operations were strong and solid testimony of the strength of its banking operations. OCBC?s exposure to China is also small compared to UOB, while it has no operations in Thailand. OCBC and UOB have relatively small exposure in Indonesia at 6% and 4% respectively. Finally, OCBC?s Islamic banking business offers an added advantage over UOB in terms of product offerings.

....OCBC Bk last @ $9.94...