Should it be “Sell in May and Go Away” or “Sell in March and Go Away”? In recent years, crises seemed to occur in March, leading to severe stock market corrections. In March 2020, we had the explosive market routs caused by the pandemic. And then in March 2022, the Russian war in Ukraine sent global markets into a devastating tailspin. Being one of the major Straits Times Index (STI) components, OCBC share price saw plenty of volatility.
To be frank, the recent March correction for OCBC share price could have been even more severe if its not for the timely ease of pandemic measures announced on 25 March 2022. The relaxation of measures should bode well for local banks as the operating environment improves significantly in the coming month. Rightfully, as we enter endemic, Singapore economy should recover and grow. Being the bellwether of the economy, OCBC Bank is likely to see healthy growth, thereby stimulating OCBC share price. Nonetheless, things are often not so straightforward in life.
Inflation has thrown a spanner in the works for the recovery of global economy, which has barely emerged from the pandemic. And the Russia war has added even more fuel to the fire. So now the market concern is that the raging inflation rates could lead to US Federal Reserve raising interest rate by 50 basis points in the 4 May meeting. Question now is: how will this affect OCBC share price?
Under normal circumstances, rising interest rates should benefit banks as net interest income would increase correspondingly. Logically, OCBC share price should rise due to this tailwind. However, there are concerns that an aggressive interest rate hike could hurt the economy, causing non-performing loans to swell. In other words, there are fears that recession is on the way as days of cheap money is coming to an end. In this article, I will share my insights on the outlook for OCBC share price in the coming months.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. I am vested in this counter, so my views on OCBC share price may be biased.
OCBC share price in cha-cha mood
Prior to the latest interest rate hike, the last time that US Federal Reserve raised interest rates was in December 2018. The period of 2015 to 2018 saw US Federal Reserve raising interest rates by five times to eventually 2.25% to 2.5% range. Back in 2018, Singapore narrowly avoided a technical recession as the third quarter saw the economy growing by just 0.6% vis-à-vis the 2.7% contraction in second quarter of that year (recession is defined as two consecutive quarters of economic contraction).
Despite the challenging operating environment in 2018, OCBC share price surged to a record high of $13.73 on 20 April 2018. Evidently, the bullish OCBC share price was driven by the US interest rate hikes. Nonetheless, good things often don’t last. The surging interest rate hikes led to Singapore implementing further housing cooling measures on 5 July 2018. As the three local banks are the biggest lenders for the local property market, their share prices got torpedoed. OCBC share price was not spared from that carnage, falling to a low of $10.40 in October 2018.
Hence, in my opinion, the rising interest rates should [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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