Between Feb 10 and Feb 15, the Straits Times Index (STI) fell by 60 points, ending the session on Feb 15 at 3,280.
Part of the reason was the sudden sell-off in the share price of DBS Group Holdings after it announced a record net profit of $8.19 billion, and its CEO had articulated the hope of getting to a net profit of $10 billion for the current calendar year which is also DBS’s financial year.
Was the market spooked by the possibility that interest rates are approaching a plateau? Or was it in DBS’s reporting that its low-cost Casa (current account savings account) had declined by $60 billion y-o-y to $318 billion during FY2022 ended December 2022 while higher-cost fixed deposits rose by $88 billion y-o-y to $209 billion?
As it is, DBS’s management guided for net interest margins in FY2023 of 2.10% to 2.20%, down from an earlier guidance of 2.25%. These new figures are unlikely to have caused DBS’s share price to fall from $36.35 at the opening bell on Feb 13 to end at $34.73 on Feb 15.
More likely, the market was spooked by DBS’s $1.3 billion exposure to the Adani Group. On Feb 16, calmer heads prevailed.
In effect, the selldown may have provided traders the opportunity to buy DBS as it hit its still-rising 50-day moving average at its lowest point of $34.71 on Feb 15. Traders may be in for a punt, selling out for a gain of perhaps 50 cents to $1.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
What should investors do? DBS is trading at 1.64x its book value as at the close of trading on Feb 15, a hefty premium.
Book values are not static. By all accounts, if DBS does get to $10 billion in net profit, its book value would surely rise. The book values of banks are affected by their revenue reserves and retained earnings. These are the monies set aside after dividend payouts, which is why dividend payout ratios are a closely watched figure for banks, as are earnings.
At any rate trend followers should check out DBS’s earnings for the past 10 years in the table.
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DBS is the largest local company with a market capitalisation of more than $90 billion. At one point Sea, listed on Nasdaq, was twice the size of DBS. As at Feb 15, its market cap was US$29.96 billion ($39.96 billion) versus DBS’s $90.67 billion.
The volatile week (Feb 13–17) so far caused the STI to dip below an important breakout level of 3,306. The break was made with a long black candle. As providence would have it, the STI immediately regained this notable support-turned-resistance that was breached. Since moving averages reflect the smoothed trend of prices, the 50-day moving average has not reversed its trend while the positive cross made by the 100- and 200-day moving averages at the start of February remains intact.
To err on the side of caution, for the rest of February, it is best to watch support at 3,306 to see if it gives way again rather than the upside target of 3,600.
