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Banks the best proxy play for rising interest rates, say analysts

Goola Warden
Goola Warden1/13/2022 6:53 PM GMT+08  • 8 min read
Banks the best proxy play for rising interest  rates, say analysts
Banks are the best investment proxies for the Fed's increasingly hawkish stance on interest rates, analysts say
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DBS Group Holdings hit a new all-time high of $35.42 on Jan 11. Year to date, the local banking behemoth is up 8%. Oversea-Chinese Banking Corp (OCBC) has rallied 6.2% since the start of the year but at $12.11, it is not at an all-time high. Back in 2018, OCBC had traded above $13.73. United Overseas Bank (UOB) is up 8.9% since the start of the year. UOB has been ahead on various digital aspects such as launching its digital bank UOB TMRW across Asean. It has also not written back any of its expected credit loss (ECL) 1 and 2 provisions, leaving multiple avenues to boost earnings.

Three key trends are likely to affect the way banks perform. In a note at the end of 2021, RHB Research summed them up as cyclical recovery, rising interest rates and fee income growth. If the pandemic transitions to an endemic phase, we should expect a cyclical recovery, RHB argues.

The banks themselves are positive about the opening of borders and business momentum picking up. All three banks communicated that loan growth is likely to moderate from the high single-digit loan growth experienced last year.

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