Dear readers, recently, I came across news that DBS stock and OCBC stock have reached new highs, while UOB stock has trailed behind its two peers. This divergence among Singapore’s three major banking stocks has reignited a long-running debate among local investors: are we overly enamoured with DBS, OCBC and UOB stocks, and if so, is that necessarily a bad thing?
Year-to-date, DBS stock has rallied to an all-time high, reinforcing its reputation as Southeast Asia’s premier banking franchise. OCBC stock has followed closely, also notching record levels. In contrast, UOB stock has lagged, weighed down by market concerns after the bank set aside around S$1 billion in provisions for future uncertainties. While prudent provisioning is generally a sign of conservative risk management, markets often react negatively in the short term, and UOB’s share price performance reflects that reality.
This situation offers a timely opportunity to step back and examine the role of DBS, OCBC and UOB stocks in Singapore’s equity market, the psychology of local investors, and a more radical idea: should the Straits Times Index (STI) increase its weighting of the three banking giants so that the benchmark index better reflects their dominance and growth potential?
DBS, OCBC and UOB Stocks: The Pillars of Singapore’s Market
DBS, OCBC and UOB stocks are more than just blue-chip investments. Together, they form the backbone of Singapore’s financial system and are widely regarded as proxies for the health of the domestic economy.
DBS Group Holdings has, over the years, transformed itself into a regional banking powerhouse. Its digital leadership, strong capital ratios, and diversified income streams have helped DBS stock consistently outperform not only its local peers but also many regional banks. When DBS stock hits new highs, it often signals confidence in Singapore’s financial resilience.
OCBC Bank, on the other hand, combines traditional banking strength with a diversified portfolio that includes insurance arm Great Eastern and a growing wealth management business. OCBC stock’s recent surge reflects investors’ appreciation of its balanced approach, steady earnings, and exposure to both retail and corporate banking across Asia.
UOB Bank completes the trio with a strong focus on Southeast Asia, particularly ASEAN markets. While UOB stock has underperformed recently due to higher provisions, its long-term strategy of regional expansion remains intact. Historically, UOB has demonstrated disciplined execution and conservative risk management, qualities that tend to pay off over longer investment horizons.
Collectively, DBS, OCBC and UOB stocks dominate trading volumes, institutional portfolios, and retail investor attention in Singapore. For many local investors, owning these three banks is almost synonymous with investing in Singapore itself.
Why Singapore Investors Love Bank Stocks
It is often said that Singapore investors are overly enamoured with bank stocks, and there is some truth to this observation. DBS, OCBC and UOB stocks are frequently the largest holdings in local portfolios, CPF-linked investments, and dividend-focused strategies.
One reason is familiarity. Singaporeans interact with these banks daily, whether through savings accounts, mortgages, credit cards or investment products. This familiarity breeds trust, and trust translates into investment conviction.
Another reason is dividends. DBS, OCBC and UOB stocks are well-known for their attractive dividend yields, especially during periods of high interest rates. For income-focused investors, particularly retirees, bank stocks offer a compelling combination of yield and perceived safety.
Finally, there is the perception of government backing and systemic importance. While there is no explicit guarantee, many investors believe that Singapore’s big three banks are “too important to fail.” This belief reduces perceived downside risk and encourages long-term holding.
However, concentration risk is the flip side of this love affair. When investors allocate a large portion of their portfolios to DBS, OCBC and UOB stocks, they become heavily exposed to the banking sector and interest rate cycles.
UOB Stock and the Cost of Prudence
UOB stock’s recent underperformance highlights how markets can sometimes penalise prudence. The bank’s decision to set aside around S$1 billion in provisions for future uncertainties reflects management’s cautious outlook amid global economic risks.
From a long-term perspective, such provisions can be seen as a strength rather than a weakness. By recognising potential risks early, UOB positions itself to weather downturns more effectively. Yet, in the short term, earnings are impacted, and UOB stock has lagged behind DBS and OCBC.
This divergence raises an important point for investors: stock market performance does not always align with fundamental strength in the short run. DBS and OCBC stocks may be riding a wave of optimism, while UOB stock is temporarily weighed down by conservative accounting decisions.
For patient investors, periods of underperformance in high-quality stocks like UOB can present opportunities. History suggests that well-managed banks tend to recover once uncertainties subside and provisions are written back or absorbed.
A Radical Idea: Increasing Bank Weightings in the STI
This brings me to a more radical thought. If Singapore investors truly have full conviction in DBS, OCBC and UOB stocks and their long-term potential, why not reflect this conviction more boldly in our benchmark index?
The Straits Times Index is designed to represent the performance of Singapore’s equity market. Yet, some argue that it does not fully capture the dominance and importance of the banking sector. While DBS, OCBC and UOB already make up a significant portion of the STI, their combined weighting could arguably be higher.
If the weight of DBS, OCBC and UOB stocks in the STI were increased, the index would become more sensitive to bank performance. As bank stocks continue to grow and deliver strong returns, the STI would benefit even more, potentially making it a more attractive benchmark for both local and international investors.
Critics might argue that this would increase concentration risk within the index. However, one could counter that the STI already reflects Singapore’s economic structure, which is heavily skewed towards financial services, real estate, and government-linked companies.
In essence, increasing the weighting of DBS, OCBC and UOB stocks would simply acknowledge reality rather than distort it.
The Case for a Bank-Heavy Index
There are several arguments in favour of a higher bank weighting in the STI. First, DBS, OCBC and UOB are among the most globally competitive companies headquartered in Singapore. Their regional reach, profitability and governance standards compare favourably with international peers.
Second, bank stocks are often the primary channel through which foreign investors gain exposure to Singapore. When global funds allocate to Singapore, they frequently start with DBS, OCBC and UOB stocks. A higher weighting could therefore align the STI more closely with how investors actually deploy capital.
Third, banks play a critical role in supporting economic growth. By financing businesses, infrastructure and households, DBS, OCBC and UOB stocks indirectly reflect broader economic activity. Their performance is not just about banking profits but also about confidence in Singapore and the region.
The Risks of Overconcentration
That said, it is important to acknowledge the risks. A bank-heavy STI would be more vulnerable to shocks affecting the financial sector, such as sharp interest rate cuts, credit crises or regulatory changes.
Diversification is a cornerstone of sound investing, and an index overly dominated by a single sector may fail to capture growth opportunities elsewhere, such as technology, healthcare or green energy.
Therefore, any proposal to increase the weighting of DBS, OCBC and UOB stocks should be balanced against the need for sectoral diversity. The goal should not be blind concentration, but thoughtful representation of Singapore’s strengths.
What This Means for Individual Investors
For individual investors, the debate around DBS, OCBC and UOB stocks offers valuable lessons. First, conviction matters. If you believe strongly in the long-term prospects of Singapore’s banks, it makes sense to hold them as core positions.
Second, valuation still matters. Even the best companies can become expensive, and chasing stocks at all-time highs carries risks. A disciplined approach, such as dollar-cost averaging, can help manage timing risk.
Third, diversification remains essential. While DBS, OCBC and UOB stocks are high-quality investments, they should ideally be complemented with exposure to other sectors and geographies.
Conclusion: Embracing Reality with Caution
DBS stock and OCBC stock reaching new highs while UOB stock trails behind is a reminder that markets are dynamic and often driven by short-term narratives. Yet, the enduring strength of Singapore’s three major banks remains unquestioned.
Singapore investors may indeed be enamoured with DBS, OCBC and UOB stocks, but this affection is rooted in fundamentals, dividends and trust built over decades. The idea of increasing their weighting in the Straits Times Index may sound radical, but it invites a deeper discussion about how we define and measure Singapore’s market.
Ultimately, whether through index design or individual portfolios, the key is balance. Embrace the strength of DBS, OCBC and UOB stocks, but do so with a clear understanding of risks, valuations and the broader investment landscape.
In doing so, investors can continue to benefit from the growth of Singapore’s banking champions while building resilient, forward-looking portfolios.