US CPI slightly decelerated to 8.3% in August from 8.5% in the previous month¹, but the figure is still more than expected as investors await signs that the Fed’s rate hikes may finally curb inflation. Interest rate futures now indicate that investors are betting the Fed funds rate to peak at around 4.6% in 2023².

The US dollar has been rising largely due to the aggressive tightened monetary policies. As a result, Asian currencies have been hit since the beginning of the year. However, the Singapore dollar has only dropped over 4%², making it more resilient than most Asian currencies. In addition, any further depreciation in the currency will likely be limited as Singapore is expected to tighten monetary policies further due to rising inflation.

Singapore equities have also held up despite the volatility in the global stock market, benefitting from the ongoing improvement of its overall economic conditions. As of 20 September 2022, the Straits Times Index climbed 4.6% this year².

Banks in the city-state were among those that performed strongly, with the stock prices of the three largest banks returning 6-14% this year². In addition to benefitting from monetary tightening, local banks have also benefitted from more loans coming from businesses globally as they set up or put in more resources locally to take advantage of the city’s reopening. Deposits have also grown, with the total deposit amount across the three banks growing between 5.6% and 10% YoY³, partly driven by residents outside Singapore, who have chosen to put money in Singapore given its wealth center status.

With Singapore’s many business-friendly policies for foreign companies and its regional financial and wealth center status, we view that Singapore will continue to drive the demand for loans and other banking services, which should be favorable for the banking sector. Against this business environment, we believe that the profitability of the three banks should improve further, giving more room to pay shareholders higher dividends. The average dividend yield of these banks is about 4%², which is attractive to investors. Given the current volatile market conditions, we believe they can build defensiveness in a portfolio.

Source:

1. US labor department,  13 Sep 2022
2. Bloomberg, 19 Sep 2022
3. SGX, 19 Sep 2022

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The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This commentary has not been reviewed by the Securities and Futures Commission. Issuer: Value Partners Hong Kong Limited.