Trading Update: Singapore Banks

Adieu...

Since our last post on the banking sector in August 2020, the various banks seem to have seen the worst of the pandemic and the market is pricing them for a recovery.

We had exited Standard Chartered in Nov 2020. You can get our thoughts on why we exited Standard Chartered here.

On hindsight, the banks look like an easy bet in 2020.

But human memory tend to be faulty.


Let’s go back to Feb 2020.

April 2020: When the oil price fell and Hin Leong went under, the market panic!

May 2020: Now everyone is bracing for the oil sector to explode. Something similar happened in 2019… Did anyone remember?

July 2020: When MAS asked the banks to cap their dividends, the shares fell further! On a policy level, it was a prudent move by MAS and is generally good for the banks.

Dec 2020: Up till December 2020, Piyush Gupta - DBS CEO is still highlighting the rising default and ultra-low interest rate the banks are facing.

And in 2021, everyone is positive! What happened?

Our argument is NOTHING materially had changed.

The only that change is the narrative given by the investment community.

The negatives highlighted by Piyush Gupta remains to be true. 2021 - 2022 will be a difficult period for all the banks in Singapore.

Coupled with the entry of digital banks, we think life for the incumbents are going to get much tougher.

Historically, the Singapore banks trade at an average of 1.28x book ratio. They could definitely go higher from here, but 1.28x is probably fair value. DBS is currently trading at around 1.2x while OCBC and UOB are lower at around 1x. There is probably some more upside here.

But it is good to recap our Graham playbook here.


The most important aspect of building a Graham Portfolio is to understand that we are not building a long term portfolio. 

We must maintain strict discipline to

  1. set a clear target price to buy when it is selling at a huge margin of safety

  2. ignore the market perception as this is usually an unloved company

  3. be comfortable to deal with illiquid shares and be able to opportunistically buy them on the market

  4. size the positioning appropriately. For us, it is usually 1% of the portfolio. For you, please decide what is your comfortable risk profile. 

  5. sell when the market offer you fair value or beyond. 

  6. not understand why the market will offer us such opportunity to buy and sell and we are just there to take advantage of it. 

  7. understand that we are there to make a potential short term profit and not fool ourself into making it into a big or permanent position. 

  8. to maintain self discipline in not deviating from your target price.


If you are an investor who wants to hold for the very long term (5-10 years), we still think they will be decent investment. Price at book, ROE of around 8 - 11% with decent growth potential in Asia.

As active investors, trying to hit 26% annually, the price value ratio is no longer enticing. As mentioned before, we tend to be a tortoise when we are buying and a hare when we sell.

Adieu Singapore banks…


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