Banks take centre stage in markets
BANKS were the movers and shakers for many stock markets last week, and that trend looks set to continue for now.
In Singapore, United Overseas Bank shares surged almost 4 per cent in price on Friday and helped drive the benchmark Straits Times Index (STI) up by 24.23 points to 3,293.73 that day.
The price upswing even prompted a rare query from the Singapore Exchange (SGX) - and a subsequent "trade with caution" notice to traders when the bank said it was unaware of any reason for the unusual trading.
Still, notwithstanding SGX's cautionary note, the counter has been the standout since January, outperforming its two peers - DBS Group Holdings and OCBC Bank - given UOB's focus on Asean and relatively smaller exposure to the China market.
UOB is also on the "buy" list of many research houses. They include Barclays, which noted in a report last week that UOB could enjoy higher margins in view of the stronger-than-expected economic growth in Asean.
At nearby Bursa Malaysia, banks also made waves last week, with CIMB, RHB Capital and Malaysia Building Society announcing plans for a three-way merger that would create the country's largest lender by assets.
The deal has put Malaysian lenders in the spotlight, even though few other details have been unveiled. One of the only pieces of information made public is that the proposed merger would use the closing share prices of the three firms on Wednesday, the day before the news broke, as reference points to facilitate the deal.
In Hong Kong, banking giant HSBC Holdings made news when it issued a report downgrading its investment outlook there to "underweight". It cited concerns that Occupy Central, a campaign for greater democracy, might hurt the city's economy.
But what made traders sit up was that HSBC had to subsequently issue an updated report to further justify its new rating.
It added that the downgrade was due to "the risk of weak residential real estate prices, the slowdown in mainland tourist arrivals, the market's link to United States interest rates... and weak earnings momentum", before mentioning Occupy Central.
On the global front, Portuguese lender Banco Espirito Santo gave the world a rude reminder of the risks still lingering in the euro zone following the debt crisis that had plagued the region over the past four years.
The bank's shares plunged 17 per cent after news of its financial problems, before trading in the counter was halted on Thursday.
The free fall in its share price added to concerns in European bourses, where already anxious investors were shaken further by weak industrial production figures out of Italy and France that reinforced the perception of a faltering euro-zone recovery.
In the week ahead, quarterly results due from US banking giants Citigroup, JPMorgan Chase and Goldman Sachs are likely to influence the direction of stock prices. Given their huge international exposure, their performance should provide an indication of the health of the world's banking system.
Reflecting the cautious mood of American investors, shares of Wells Fargo, the largest US lender by market value, slipped 0.6 per cent on Friday, though it posted revenues just above estimates.
Its numbers reflected the dilemma faced by many investors when assessing banks that successfully weathered the global financial crisis six years ago.
In its latest quarterly results, the US lender said deposits had continued to grow, but its net interest margin - the difference between what it makes from lending money and what it pays depositors - had fallen. Overall, new lending had slumped 58 per cent.
THE STRAITS TIMES