OCBC share price stormed to record high!

September 24, 2024 sgwealthbuilder 33 Views 0 Comments

Lifetime Membership What a rampage! Like a crazy bull on the rampant, OCBC share price turbocharged to record highs following US Fed’s jumbo interest rate cut of 50 basis points. Year-to-date, OCBC share price surged 20% to hit a record of $15.60. Of noteworthy is that all the three bank stocks went on a rally after the Fed interest rate cut. Why is that so? After all, wouldn’t the interest rate cut hit the banks’ Net Interest Margin (NIM) and Net Interest Income (NII)?

Whilst a lower interest rate will surely eat into earning margins for the banks, it will also spur demand for loans. This is especially so for housing loans, which had been hit left, right and center by the longer-than-expected high interest rate climate. All three banks have significant exposure to the local housing loan market. Hence, a lower interest rate, could actually benefit the banks if the cut is not so drastic.

Additionally, lower interest rate also helps to improve a bank’s asset quality as borrowers repay their loans, resulting in lower bad debts. An interesting to note is that the Non-Performing Assets (NPA) of OCBC has been trending down since FY2021 – from $4.338 billion in FY2021 to $2.9 billion in 1HFY2024. This suggests that the management has been good in managing the asset quality. With further rate cuts on the horizon, I expect NPA to continue decreasing, thereby boosting OCBC share price in the near term.

For OCBC share price, the rise has not been linear. If investors look back, OCBC share price was given a jolt with the announcement of voluntary unconditional offer for Great Eastern Holdings on 10 May 2024. The market had reacted very positively as OCBC share price rose to a 5-month high to reach $14.50 back then (normally shares of the acquirer would drop). Investors probably felt that the acquisition of Great Eastern is a major feather in the cap for CEO Helen Wong.

The privatisation of GEH would be a significant, yet a low-hanging fruit for the CEO Helen Wong. She would have achieved a feat not accomplished by previous CEOs – David Connor and Samuel Tsien. As Great Eastern has evolved to become a crown jewel for OCBC, the acquisition is definitely a strategic move. It would also cement OCBC as a leading financial powerhouse.

OCBC share price surged with Great Eastern offer

OCBC share price in Great Eastern windfall!

OCBC share price to boom with Great Eastern sale?

OCBC share price to rocket with Great Eastern Holdings exit?

However, the release of 2QFY2024 threw a spanner in the works as OCBC share price came under siege. Net profit for second quarter dropped 2% quarter-on-quarter to $1.944 billion. Short-sellers wasted no time punishing the bank as OCBC share price fell from $14.80 on 2 August to $13.80 on 6 August. Short-selling volume for OCBC rose to a high of 5.9 million on 2 August and 6.3 million on 5 August.

In this blog, I have always maintained that short-sellers played a role behind the perennial poor valuations of SGX stocks, especially those index stocks in STI. OCBC, being one of the major STI components, is often subject to short-selling attacks. One of the key reasons behind the rise of short-sellers in Singapore is due to changes made to the SGX Securities Borrowing and Lending (SBL) programme, which lends support to short selling activities. With effect from 2 December 2019, SGX replaced the fixed rates for SBL programme. The borrowing rates for index stocks had been dramatically reduced from 6% per annum to a low of 0.25% per annum!

The privatisation of Great Eastern comes at a time as the Fed has initiated interest rate cuts, thereby complicating the outlook for global stock market, especially bank stocks. Additionally, OCBC Bank also has significant exposure to Great China market, which is still mired in the economic doldrums. As such, investors should take these factors into consideration when investing in OCBC shares. In this article, I will share my insights on the reason behind OCBC’s sudden push to privatise Great Eastern and the outlook of OCBC share price in 2025.

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 OCBC or Great Eastern shares at the moment. Whether OCBC share price of Great Eastern share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

OCBC share price in litmus test

Despite the shelling from short sellers, OCBC share price recovered in double quick time. One powerful factor for the recovery of OCBC share price should be the [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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