OCBC share price held ransom by Great Eastern

Sign up for only $19.99! Is it the right time and right place for OCBC share price? At Price/Book Value of 0.805, OCBC share price is trading below its book value, no thanks to the fallout from COVID-19 pandemic. Yet against the backdrop of Singapore’s Phase 3 reopening, will OCBC share price be able to ride on the coming recovery?

On a quarter-to-quarter basis, Singapore’s GDP expanded by 7.9% due to the robust showing from the manufacturing sector. Being the bellwether of the economy, bank stocks are proxy to the country’s economic condition. In this regard, the coming third quarter business update will be a baptism of fire for OCBC share price as investors will be scrutinizing the performance of OCBC’s insurance subsidiary, Great Eastern.

What can float a boat can also sink it. While Great Eastern Holdings had provided OCBC an unassailable edge over DBS and UOB for decades, the volatile financial performances of the insurance company had wrecked OCBC share price in recent years. Coupled with COVID-19, it is indeed the perfect storm for both OCBC and Great Eastern.

Year-to-date, OCBC share price had been hammered left, right and centre by the devastating COVID-19 pandemic. OCBC share price would have suffered a worse fate if not for the $100 billion economic stimulus packages from the government. However, one of the measures of Monetary Authority of Singapore is 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 series of shares buybacks in March and April enabled OCBC share price to make a swift recovery from the low of $7.80, the peak of the COVID-19 impact on global stock markets. Without the shares buybacks, it is difficult for OCBC share price to stage a comeback in the coming months.

Another measure of MAS is the offering of scrip dividends to shareholders. Given that the participation rate for the scrip dividend was high (75%) with 67.5 million new shares being issued, this is one of the factors that weighed on OCBC share price.

Perhaps the most damaging MAS measure is the capping of banks’ dividends for FY2020 at 60% of last year. This measure really knocked the wind out of OCBC share price, which dropped from the $9.00 bandwidth and never recovered since then.

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 lost steam

The three MAS measures serve to ensure the liquidity of the banking sector and aim to preserve capitals for the banks. Despite so, these measures inadvertently caused OCBC share price to be bearish. With no shares buybacks, lower dividends and scrip dividends, I don’t see any catalysts that could stimulate OCBC share price in the coming months. But could it get worse for OCBC share price from this point? Will the performance of Great Eastern come back to haunt OCBC share price?

In my humble opinion, the worst [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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