Dear readers, it is official. After several consecutive sessions of selling pressure, DBS, OCBC and UOB have entered oversold territory based on their RSI indicators.
But does this mean their share prices are ready for a rebound? I would be cautious about jumping to that conclusion.
In my opinion, the recent weakness in Singapore’s three leading banks is not simply a reaction to their latest earnings results. It also reflects broader concerns surrounding global equity valuations, particularly the growing anxiety over AI-related stocks and the possibility that parts of the market have become excessively valued.
There is another development that investors should pay attention to.
The recent resilience of the Straits Times Index may not necessarily reflect the strength of the broader Singapore stock market. Given the substantial weighting of DBS, OCBC and UOB in the STI, the index’s performance can be heavily influenced by these three banking stocks.
In other words, the STI can appear relatively resilient even when weakness is developing across other segments of the Singapore market.
I would also argue that the recent initiatives announced by the three banks may partly be intended to reassure investors and restore confidence amid the share price weakness. However, corporate initiatives and shareholder returns do not necessarily address the underlying concern: whether current valuations can still be justified by future earnings growth.
This is where I believe investors need to be particularly careful.
DBS, OCBC and UOB have enjoyed considerable share price appreciation over the years. However, when investors pay increasingly demanding valuations based on expectations of continued earnings growth, even respectable financial results may no longer be sufficient to sustain those valuations.
When earnings expectations and the valuations investors are willing to pay begin to diverge, share prices can face further downward pressure.
My near-term view? I remain cautious.
Despite all three banks entering oversold territory, I would not rule out further downside before a meaningful recovery takes shape.
And if the three banking heavyweights continue to weaken, the STI could face additional downward pressure simply because of their significant index weightings.
Investors should therefore look beyond the STI headline and examine what is happening beneath the surface.
An oversold RSI may eventually present an opportunity. But oversold does not necessarily mean cheap, and cheap does not necessarily mean that the selling is over.
For now, I believe patience and valuation discipline are more important than rushing to buy the dip.
Beside banks, what are the opportunities in Singapore to look out for? To understand more, please watch a video which I have created below.
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