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Singapore bank dividends: What is the outlook for the rest of 2020?

In our most recent update on Singapore’s three main money lenders – DBS Group, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), we had examined their respective stock and business outlook for the next two years.

  • DBS’s projected FY2020 DPS yield: c.3.5%
  • OCBC’s projected FY2020 DPS yield: c.3.6%
  • UOB’s projected FY2020 DPS yield: c.3.9%

In our most recent update on Singapore’s three main money lenders – DBS Group, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), we had examined their respective stock and business outlook for the next two years.

This week, we shine the spotlight on the banks’ dividends, and how pay-outs will be impacted by Monetary Authority of Singapore’s (MAS) directive last month for dividends per share (DPS) to be capped at 60% of FY2019’s sum.

DBS Group’s projected FY2020 dividend yield: 3.5%

DBS Group lowered interim dividends by the largest percentage in Q2.

The group proposed a half-year dividend amount of S$0.18 per share, 40% below the amount of S$0.30 paid a year prior.

Under MAS’ guidelines, the maximum DPS that DBS can declare for FY2020 would be S$0.738, against FY 2019’s total DPS of S$1.23.

This would equate to a maximum dividend yield of roughly 3.5% this financial year – the lowest among the three banks, based on 25 August 2020’s closing share price of S$20.99.

Comparing the three banks, CIMB brokers wrote that they preferred DBS over UOB and OCBC in terms of DPS outlook.

They have their ‘hopes up for a recovery’ in DBS’ full-year dividends for FY2021, as the bank was already confident of sustaining its DPS amount prior to MAS’ directive.

In terms of share price outlook, the DBS stock currently has an average 12-month price target of S22.96 from 20 analysts polled by Bloomberg. This represents an upside of 9.4% from Tuesday 25 August 2020’s closing price of S$20.99 a share.

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OCBC’s projected FY2020 dividend yield: 3.6%

Of the three banks, OCBC saw the second largest decline in interim dividends in the latest quarter.

The group proposed an interim one-time tax-exempt dividend of S$0.159 per share, which works out to be 36.4% lower than the amount of S$0.25 paid a year prior.

Under MAS’ guidelines, the maximum DPS that OCBC can declare for FY2020 would be S$0.318, against FY 2019’s total DPS of S$0.53.

This would equate to a maximum dividend yield of 3.6% for this financial year, based on 25 August’s closing share price of S$8.73.

In their latest note, DBS brokers stated that they prefer UOB over OCBC for its higher dividend yield of 3.9%, adding that they ‘remain cautious over OCBC’s larger exposure to regional small and medium enterprises in Hong Kong and Indonesia’.

Meanwhile, CIMB had called OCBC their least preferred dividend pick, citing the bank’s ‘unexpected credit costs and volatile treasury income’ as key factors.

In terms of share price outlook, the OCBC stock currently has an average 12-month price target of S$9.87 from 21 analysts polled by Bloomberg. This represents an upside of 13% from Tuesday 25 August 2020’s closing price of S$8.73 a share.

UOB’s project FY2021 dividend yield: 3.9%

UOB declared the smallest drop in interim dividend pay-out this year.

The group proposed a dividend of S$0.39 per share, down 29% from the amount of S$0.55 paid a year prior.

Under MAS’ guidelines, the maximum DPS that UOB can declare for FY2020 would be S$0.78, against FY 2019’s total DPS of S$1.30.

This would equate to a maximum dividend yield of roughly 3.9% this financial year – the highest among the three banks, based on 25 August 2020’s closing share price of S$20.06.

As mentioned above, DBS researchers prefer UOB over OCBC ‘as a more defensive’ stock pick due to its higher dividend yield, as well as higher return on equity and larger domestic exposure.

Looking further ahead, RHB analysts predict that UOB’s full-year dividend amount for FY2021 will increase to S$0.90 – assuming that there are no further MAS updates.

In terms of share price outlook, the UOB stock currently has an average 12-month target of S$21.93 from 20 analysts polled by Bloomberg. This represents an upside of 9.3% from Tuesday 25 August 2020’s closing price of S$20.06 a share.

How to trade Singapore banks with IG

Are you feeling bullish or bearish on DBS, OCBC or UOB stocks? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG’s industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <DBS Group Holdings Ltd>, <Oversea-Chinese Banking Corp Ltd> or <United Overseas Bank Ltd> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade
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3 ways to profit in the ‘year of the dollar’

In December, the Federal Reserve raised loan fees for the second time since the Great Recession and included the desire of a 2017 financing cost climb to its gauge. Furthermore, only a couple days prior, the abundantly anticipated minutes from the most recent Fed meeting demonstrated the most hawkish tone from the national bank in two years.

In the meantime, Europe has been dove into political turmoil after a year ago’s Brexit vote and the later abdication of Italy’s leader. Somewhere else, the Bank of Japan proceeds down the way of negative rates and forceful security purchasing.

Put it all together, and it isn’t astounding that the U.S. Dollar Index is up against 14-year highs.

Speculators may have missed so much discussion on account of babble about the Dow Jones Industrial Average at the end of the day almost hitting 20,000. Be that as it may, paying little respect to your assignment to stocks or your venture skyline, this sort of huge picture incline in the dollar implies right now is an ideal opportunity to position your portfolio to benefit and, maybe most critical, to keep away from a portion of the pitfalls that can originate from a solid local cash.

Here are a couple ideas dollar exchanges ought to consider:

Residential plays over multinationals

There’s a considerable measure of seek after shopper stocks in 2017 on account of an enhancing work market and any desires for a jolt under a GOP-controlled Congress and President Donald Trump. In any case, remember that not all retailers are made equivalent especially those with abroad operations that are adversely affected by the wide dissimilarity in monetary standards at this moment.

For example, retailer Wal-Mart Stores Inc.(WMT) said troublesome money trade rates shaved very nearly 2.5% off profit for each partake in the second quarter of 2016. On the other hand consider that in the monetary final quarter of 2016, athletic attire goliath Nike Inc.(NKE) saw its income development cut down the middle because of forex weights, from 12% year-over-year in consistent cash measures to only 6% including real money changes.

To take advantage of the “reflation” exchange that numerous financial specialists are counts on in 2017, you need to represent the headwinds that a solid dollar are making for multinationals at this moment. The most ideal approach to do that is to consider customer plays that do by far most of their business here in the U.S. – for example, Foot Locker Inc.(FL), which has been an uncommon splendid spot in retail throughout the most recent couple of years.

Supported money ETFs

Obviously, in the event that you need a steady portfolio, you can’t just purchase just local centered values. Geographic expansion is similarly as imperative as enhancement crosswise over parts and resource classes. Such a large number of financial specialists keep on holding worldwide plays in light of a legitimate concern for a balanced portfolio, regardless of the possibility that it implies battling a daunting struggle as a result of a solid dollar.

The uplifting news, notwithstanding, is that you don’t need to leave yourself to torment through a solid dollar and a powerless euro when you put resources into Europe. Nor do you need to stress over the yen-dollar conversion standard when you put resources into Japan. That is on account of there’s an entire group of cash supported ETFs to permit financial specialists to put their cash in outside business sectors yet keep away from forex issues.

Consider that Japan’s Nikkei 225 file is up around 25% from its July 2016 lows. The WisdomTree Japan Hedged Equity Fund(DXJ) is up 35% in a similar period on account of assurance from forex issues and a somewhat better-performing rundown of stocks – while the non-supported iShares MSCI Japan ETF(EWJ) is up only 10% in a similar period because of battling a difficult task against a solid dollar.

In the event that you need to differentiate your portfolio comprehensively, you ought to consider supported assets that incorporate the Japan-centered DXJ, the WisdomTree Europe Hedged Equity Fund(HEDJ) to play Europe or the iShares money Hedged MSCI EAFE ETF (HEFA) for developing markets.

Dollar list ETF

In the event that you are searching for an immediate play on a rising dollar as opposed to putting resources into stocks, figuring out how to exchange remote trade can appear like an overwhelming undertaking. Gratefully, there’s the PowerShares DB US Dollar Index Bullish Fund(UUP).

This ETF is attached to the U.S. Dollar Index, which is a measure of the greenback against a wicker container of other worldwide monetary standards including the yen and the euro. It’s a straight money play, however that doesn’t make it straightforward or hazard free. In the event that the dollar debilitates, you’ll lose cash similarly as though you’re putting resources into a stock that has fallen on difficult circumstances. Furthermore, obviously, PowerShares takes a little cut of your speculations en route that indicates 0.8% yearly, or $80 a year on each $10,000 contributed.

Still, in the event that you need to conjecture on the dollar or support against a solid U.S. cash keeping down other worldwide ventures on your rundown, it’s maybe the least demanding approach to do as such for generally financial specialists.

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The US Federal Reserve is pushing China into a messy Catch-22

The U.S. dollar record surged to a close to 14-year high after the Fed’s rate climb on Wednesday and its amaze conjecture for three more builds — rather than the two that were normal already — to come in 2017.

Higher loan fees in the United States make it enticing for China to raise its own particular rates, since Beijing doesn’t need more cash to escape the nation into higher-yielding U.S. bonds. That flight additionally damages China’s money, the yuan. Be that as it may, Beijing could cause its economy harm by climbing rates, since its proceeded with monetary development is intensely determined by getting.

“You had this weight was at that point building, and the Fed has fundamentally entangled and added to that with a more hawkish message,” said Logan Wright, chief, China markets explore at Rhodium Group.

China’s yuan along these lines tumbled to its most minimal level since 2008, and the nation’s 10-year security yield bounced to its largest amount in over a year. Decreases in five-year and 10-year Chinese security prospects were allegedly so extraordinary Thursday that exchange was ended because of a market exchanging limit.

“The security advertise itself, it’s raising a considerable measure of consideration, and it’s imaginable reflecting [that] policymakers in China are confronting a troublesome decision at this moment,” said Kai Yan, a financial analyst at the International Monetary Fund. He noticed that “the theory in the market is high on the grounds that the national bank needs to remain before money weight to avert capital surge.”

Chinese policymakers must “either climb the loan cost (as) the U.S. does, or they surrender the conversion scale,” Yan said. “It is likely they will do a blend of the two.”

Presently there are rising worries that issues on the planet’s second-biggest economy may again shake advertises comprehensively.

China’s money related and financial difficulties have been in a lower priority status for U.S. markets for a great part of the previous year. The yuan’s deterioration versus the dollar has been to a great extent disregarded by worldwide markets, as financial overhauls out of China have held up on account of a surge of obligation that is propping up the nation’s economy.

Not long ago, the Fed was viewed as giving China some breathing space to balance out its coin and monetary development. The U.S. national bank refered to worldwide worries in keeping away from a rate climb in the fall of 2015 and decreasing its desires for 2016 rate increments.

Those choices from the Fed kept the dollar enduring, permitting China to maintain a strategic distance from a critical devaluation of its money.

Presently, in any case, some say the Fed might be less worried about China since the U.S. economy is on firmer balance and can expect huge household government spending from President-elect Donald Trump’s recommendations.

In the event that Fed policymakers “feel Trump’s approaches can protect the U.S. from worldwide instability (still an obscure in my view), then the Fed would be all the more eager to endure with its standardization with less respect for worldwide advancements,” Tai Hui, overseeing executive and boss Asia advertise strategist at JPMorgan Funds, said in an email.

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