Wednesday, November 4, 2015

DBS could be benefited from the rate hike

DBS Q3 net interest profit grows 6% , net interest margin increases and loan grows both indicate the potential grow signal.
According to announcement, it is expected to have more than 7% growth.

 Beside the statement announced few days ago, there are further information investors should take note. Bank-Stock valuation is highly based on asset quality, after the Global Financial Crisis, Banks generally improve their asset quality hence it is more stable to face the rate hike. In fact, the actual earning of bank could change, net interest spread widen drives up the profit. According to report, in the past 3 rate hike cycles, bank sector performs well half year and one year after a rate hike.

In the other hand, Fed will rise the rate only when the economy is strong enough to swallow it. Strong economy defined is that household's willing to spend and firm's investment opportunities are growing which turn into high loan demand and low unemployment rate.  Loan demand is one of the important source of income for bank, which drive the profit up.

When we look at the trend, DBS peaked at S$21.5 in July before the market correction that triggered by China market and today priced at S$17.6. Arts - Position Trade has a signal of buy, we keep it into potential buy list.

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