OCBC share price: What’s the latest amid changing vaccine narrative?

Singapore money lender Oversea-Chinese Banking Corporation (OCBC)’s share price was up as much as 3.5% this week amid positive coronavirus vaccine developments out of the US.

Equities spike up on positive vaccine trial results

On Monday 18 May 2020, global equity markets spiked up after US biotechnology drug developer Moderna reported ‘positive’ early-stage trial results for a potential coronavirus vaccine.

Fellow Singapore banks DBS Group and United Overseas Bank also saw their share prices soar as much as 1.9% and 2.9% respectively following the reports.

The Straits Times Index (STI Index) – which tracks the performance of the top 30 companies listed on the Singapore Exchange, also received a boost of 2.67% at the start of the week.

However, conflicting reports a day later regarding the vaccine’s trial outcome quickly erased roughly 50% of OCBC’s gains. At the close of Thursday (21 May), OCBC shares are trading at S$8.92 apiece, down from the week’s high of S$9.05, based on IG data.

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Technical analysis of OCBC’s share price performance

Narrative-driven growth spurts aside, IG Asia market analyst Pan Jingyi pointed out that retracement of losses had been underway for OCBC following the massive plunge in share prices through March.

On a technical basis, she noted that although OCBC had managed to reclaim more than 30% of the dive in prices thus far, ‘momentum looks to be stalling with strong resistances ahead’.

‘The 38.2% Fibonacci retracement level at around S$9.08 had capped gains on multiple counts thus far,’ Pan wrote.

‘In what looks to be an ascending triangle pattern for OCBC, prices are now approaching the apex, one to watch for breakout. Failure to leap above the level could see prices continue in a sideway pattern.’

Read also: OCBC CEO says recovery 'unlikely until 2021 at the earliest'

OCBC’s strong capital ratio will help sustain dividends

In terms of share price forecast, four analysts from DBS, Maybank, RHB and UOB have provided an average 12-month share price of S$8.96 per share – on par with the latest traded figure.

RBH analyst Len Seng Choon has named OCBC as his preferred pick among the three Singapore banks because of its higher Common Equity Tier 1 (CET-1) ratio at 14.3% (versus DBS’ 13.9% and UOB’s 14.1%) – indicating stronger financial strength, as well as its ‘high exposure to a recovering Greater China’.

But he maintained a ‘neutral’ rating on the stock because of potential further short-term share price downsides, citing asset quality uncertainties as a major headwind.

UOB’s Jonathan Koh reiterated a ‘buy’ rating on the OCBC stock with a higher price target of S$9.78 (up from S$8.81), based on the bank’s ‘attractive’ dividend yield of 6.4%, which he sees as tenable due to OCBC’s ‘robust’ CET-1 ratio.

He also noted that while OCBC suffered a double whammy of Covid-19 and crude oil price collapse in the first quarter of 2020, the bank has set aside adequate general provisions of S$382 million to address these risks. A strong capital base well above the minimum requirement of 9.0% also keeps the stock a safe investment.

How to trade Singapore banking stocks with IG

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