OCBC share price ambushed by MAS

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Will OCBC share price see daylight? The COVID-19 pandemic has upended the entire world and causes Singapore economy to shrink by a whopping 13.2 percent for 2nd quarter on a year-on-year basis. Given that bank stocks are highly sensitive to economy condition, OCBC share price is expected to face a bitter winter ahead.

OCBC share price

With the highest Common Equity Tier 1 among the three local banks, OCBC continues to be the strongest Singapore bank. It is this trait that gives me the conviction in OCBC share price. But whether the management can leverage on this position of strength amid the pandemic crisis is a big question mark.

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To further complicate matters for OCBC share price, the Monetary Authority of Singapore (MAS) implemented a series of measures to ensure the financial stability of the local banks. One of the key measures implemented in April 2020 was the restriction of shares buybacks in exchange for the loosening of some capital requirements.

Among the three local banks, OCBC is considered the most aggressive when it comes to shares buybacks in recent years. The aim of shares buybacks is not really to prop up OCBC share price for shareholders’ benefits. Rather, it is a strategy to enhance the Return on Equity (ROE) – a key metric for management’s performance. Looking back, ROE has steadily increased from 9.5% in FY2016 to 10.8% in FY2019.

Obviously, from a shareholder’s perspective, shares buybacks are good because they help to provide support for OCBC share price. In fact, the last shares buyback done by OCBC was on 13 April 2020. In all, a total of 17.2 million OCBC shares have been accumulated. The series of shares buybacks in March and April enabled OCBC share price to make a swift recovery from the low of $7.80 during the peak of the COVID-19 impact on global stock markets.

Then on 29 July 2020, the MAS dropped the bombshell of capping banks’ dividends for FY2020 at 60% of last year. That announcement really knocked the wind out of OCBC share price, which dropped to $8.50.

Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. In addition, I am vested in this counter (holding 1300 OCBC shares at $11.00) so my views may be biased.

OCBC share price in consolidation mode

Currently, the Price/Book value stands at a mere 0.815. This suggests that OCBC share price is being traded at a discounted level to its book value. This is indeed an appealing price level for investors to enter. After all, if you don’t invest during crisis time, when will be a better time? Furthermore, the local banks are still making healthy profits at the moment and not facing any form of liquidity crunch.

Bu investors must be worrying whether it get any worse for OCBC share price. In my humble opinion, the worst should be [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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Updated: August 15, 2020 — 8:47 am

2 Comments

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  1. Thanks, Gerald. Just wondering if you had ever accumulated more when it went down so significantly, and sold some when rising higher in order to control your position while doing average down, since your entry price is quite high.

  2. Hi Leo,

    Good question! I have been pondering about whether to dollar average my investments in OCBC for the past few months. Previously, I have bought the shares using my SRS and meant to hold for the long-term. So I would not be selling the OCBC shares. I actually intend to accumulate some more OCBC shares if not for the MAS measures (dividend caps and shares buybacks restriction). I guess I would invest my SRS funds for this year to other counters (SGX and Sembcorp Industries) to diversify my portfolio.

    Regards,
    Gerald
    https://sgwealthbuilder.com

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