Bank sell-off casts pall in Southeast Asia, Singapore stocks drop 3%

(Oct 8): Major banks in Southeast Asia declined more than 1% on Thursday, with the region's top lender, DBS Group, dragging Singapore stocks more than 3% lower as rising bond yields brought into focus risks to bank earnings growth and funding costs.

The MSCI EM Asia equities index declined 1.8% in its worst day since early September, largely weighed down by a 2.6% drop in South Korea's Kospi.

In Singapore, the FTSE Straits Times index shed as much as 3.2% to hit its lowest since mid-July, with DBS dipping 5.2% to mark its steepest daily loss since April last year. Smaller rivals OCBC and UOB fell nearly 5% each. Together, the three banks account for more than half of Singapore's main index, and make up more than a third of the MSCI Asean equity gauge, which marked its worst daily drop since early March.

JPMorgan and Citi raised concerns over Asean banks' earnings outlook, citing surging long-dated bond yields, higher funding costs and the normalisation of exceptional first-half wealth-related income.

"A combination of higher rates, AQ (asset quality) risks, funding tightness and capital-market-related revenue risks should impact quite a few bank stocks going into 3Q results," JPMorgan analysts led by Harsh Wardhan Modi wrote.

They recommend trimming exposure to all three major Singapore banks.

After a strong run in bank shares, investors may have become more sensitive to earnings risks and negative catalysts, said James Ooi, market strategist at Tiger Brokers.

"The market may also be reassessing the assumption that higher Singapore dollar interest rates are necessarily positive for banks. Higher rates can lift yields on loans and newly deployed assets, but they also push up what banks pay for deposits and other funding."

Singapore's central bank is expected to issue its quarterly monetary policy statement next week.

The negative sentiment crept into banking stocks across the region. Malaysia's largest bank by assets Maybank (KL:MAYBANK) fell as much as 0.6%, pushing stocks in Kuala Lumpur down 0.9%. Smaller rival CIMB Group (KL:CIMB) slipped 1.9% to hit its lowest in a year. Thailand's Kasikornbank declined as much as 2.1% to its lowest in three months.

South Korean stocks, meanwhile, dropped to a one-month closing low. Samsung Electronics estimated a near ninefold jump in third-quarter earnings as booming demand for AI chips drove strong memory sales. The chipmaker's shares, however, slipped 2.4%. Tech-linked Taiwanese equities followed suit, slipping 1%.

Most emerging Asian currencies traded in a tight range against a largely steady US dollar, with the exception of the Taiwan dollar depreciating 0.5%. An MSCI gauge of global emerging market currencies slipped marginally during Asia trading hours.

Uploaded by Magessan Varatharaja

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