OCBC's short sell volume jumps 82% as share price hits new low

Singapore money lender Oversea-Chinese Banking Corporation (OCBC) saw share price fall under S$9 per share on Friday 13 March morning.

Stocks fell as low as S$8.72 a share – the lowest price since November 2016 – at 9.30am.

The bank’s stock value has been steadily declining for the last one month. On 24 January – just before the outbreak of the coronavirus, shares were trading at S$11.10 apiece.

OCBC’s short sell volume up over 82% since January

On the back of the share price decline, which stands at 20.9% year-to-date, short sell volume has jumped up exponentially by over 82%.

In late-January this year, short sell volume was 846,000. On Monday 09 March, in a global sell-off atmosphere first triggered by Saudi Arabia and Russia disputes over oil, short sell volume hit 4.71 million shares (or 18.4% of all trades on the OCBC counter) as share price plummeted 6.76% from the previous weekend.

OCBC’s average short sell price is S$9.203, according to Singapore Exchange data from 12 March.

Short selling, also known as going short or shorting, is when traders place trades on the hope that markets will fall in price. When going short, one sells a borrowed asset, then aims to buy it back later for a profit.

Most short-selling takes place on shares, but is also available on other financial markets, including forex and indices.

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OCBC’s share price fall a reflection of general market uncertainty

This latest share price plunge comes a day after Singapore’s Minister Lee Hsien Loong said in a national address that COVID-19’s threat to the country’s socioeconomic activities is likely to last at least one more year.

On Thursday 12 March, the World Health Organization also declared the coronavirus a pandemic. Following that, the US banned 26 mainland European countries from travelling into the country for 30 days.

These announcements immediately sent European and US benchmarks into a free fall. Both the S&P 500 index and Dow Jones Industrial Average in the US nosedived over 9.5% in Thursday’s session, while Germany’s DAX Performance Index and UK’s FTSE 100 crashed 12.24% and 10.87% each.

Singapore's Straits Times Index also plummeted 5.24% to open Friday's market - its lowest level since 2015.

This massive decline in index value reflects present global sentiments toward equity and other risk-leaning markets, as the coronavirus continues to worry investors and traders who are now looking to cover their losses.

As IG Asia market analyst Pan Jingyi wrote in a client note, ‘caution continues to be rendered’ in the equity market, with even safe-haven assets like gold not spared from the liquidity rush.

Where do analysts see OCBC’s share price going next?

UOB analyst Jonathan Koh gave the OCBC stock a ‘buy’ rating on 12 March, alongside a 12-month share price target of S$12.25 per share, based on its attractive annual dividend yield of 5.8% in 2019.

He stated that OCBC posseses a track record of exceeding 6% in dividend yields once in the last 30 years, and is currently trading at 5.9% yield. He views the current dividend payout ratio as sustainable, due to the bank's 'robust' common tier one equity ratio.

According to Koh, oil price plunges have also been ‘comprehensively addressed’. Exposures to the oil and gas sector accounted for 5% of the bank’s total loans as of December 2019.

Maybank Kim Eng’s Thilan Wickramasinghe had previously raised his share price target for OCBC to S$11.57 from S$11.26, maintaining a ‘hold’ rating alongside a 5% upside.

His estimates had come on the back OCBC’s dividend increase for its 2019 financial year from S$0.23 to S$0.28, which he viewed as a ‘fresh’ and ‘progressive’ approach.

He also predicted that the final dividend payout for 2020 may amount to at least S$0.56 per share, which would mean a 5.1% yield on a 55% payout, versus 48% in 2019.

On the flipside, he cautioned that near-term performance will likely be dominated by COVID-19 risks. Given the potential for a prolonged outbreak, he estimated that credit costs will be around 20 to 34 basis points between the 2020 and 2022, with non-performing loans also expected to rise to 1.7% in 2021 on the back of supply chain disruptions and falling consumption.

He also lowered his earnings per share forecast for 2020 by 4% to 7% to ‘account for COVID-19’s risks and higher provisioning costs’.

Go long or short on OCBC shares and other Singapore stocks by trading CFDs via IG's market-leading trading platform. Start today by opening an IG account.