Lifetime Membership As we approach the end of the year, it is time to review the performance of OCBC share price. I had bought 6000 OCBC shares in August 2021 but exited when OCBC share price was trading at $12.40. The key reason for my exit was the unpredictability of OCBC share price.
When I invested in OCBC in August 2021, my thesis was that bank stocks should perform well in high inflationary environment as high interest rates generally lead to higher net interest incomes for the banks. Back then, I had anticipated that US Federal Reserves would hike interest rates in 2022 and that Singapore bank stocks would be the biggest beneficiary from the rate hikes. However, OCBC share price had not taken off as I have envisioned it to be. And I was humbled.
Year-to-date, OCBC share price has risen by only about 8.3%. While this is a really decent performance, it should be highlighted that US Federal Reserve has hiked four consecutive 75 basis point of interest rates. Against this context, OCBC share price should have increased by a higher margin but have flattered to deceive so far. What could be the key factors?
The problem with OCBC share price is that it is vulnerable to short selling activities. According to SGX Securities Borrowing & Lending Programme (SBL), investors had loaned 31.4 million of OCBC shares for short sellers. This amount is the highest among the three banks – DBS (10.6 million) and UOB (5.5 million). To make matters worse, SGX had lowered the lending and borrowing fees in December 2019, paving the way for short sellers to short OCBC shares at significantly lower rates. Given that OCBC share price is the cheapest among the three banks, this effectively makes OCBC shares prone to short selling attacks.
The initial onset of the Ukraine-Russia conflict had caused short-selling volume against OCBC shares to rocket in late February. On 25 February, the short volume amounted to a staggering 8 million. On 24 February, the short volume was 7.1 million, which is higher than the 6.1 million recorded on 23 February. Prior to these, the short selling volume amounted to only 1.2 million on 22 February. The short selling attacks caused OCBC share price to plunge from a high of $13.35 in February 2022 to a low of $11.30 in early March 2022. In April and May 2022, when short selling volume hit 3 to 4 million, OCBC share price would turn bearish.
On the other hand, the unfolding fallout from the zero-COVID policy in China created much uncertainty for OCBC share price due to OCBC’s Wing Hang Bank franchise and its stake in Bank of Ningbo. Apart from the COVID-19 lockdowns in China, how the property real estate crisis plays out may also have a significant bearing on OCBC due to its banking franchise exposure in Greater China. In this regard, what is the outlook for OCBC share price in 2023?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 not vested in this counter at the moment.
OCBC share price to shine in 2023?
Looking back, the explosive bull run of OCBC share price from 2015 to 2018 was largely due to the nine US Federal Reserve interest rate hikes. During that period, the US Federal Reserve raised the interest rate to a high of 2.5% in December 2018. On this note, there is no reason that history will not repeat itself.
The current spike in the federal funds rate will be a formidable tailwind for OCBC share price as the net interest income should increase accordingly. Nonetheless, Monetary Authority of Singapore (MAS) had thrown a spanner in the works by mandating the roll-out of Singapore Overnight Rate Average (SORA) and discontinuation of SIBOR (Singapore Interbank Offered Rates) by 2024. All banks are to cease issuing new loans under SIBOR from September 2021 onwards.
With SIBOR and SOR to be discontinued, the net interest income of OCBC may come under pressure as borrowers switch to loans based on SORA. Assuming that net income for OCBC increases to $6.0 billion for full-year FY2022, then the earning per share will be $1.33. This would translate to target OCBC share price of [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.]Lifetime Membership
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