$OVERSEA-CHINESE BANKING CORP(O39.SI)$
$DBS GROUP HOLDINGS LTD(D05.SI)$
$UNITED OVERSEAS BANK LIMITED(U11.SI)$
The past few days had been absolutely chaotic as global stock markets tumbled over fear of recession and soaring inflation in US. Investors were bracing for US Federal Reserves to raise interest rate hikes aggressively to fight the raging inflation. Consequently, the Federal Reserves did raise interest rate – by a whopping 75 basis points, the biggest hike since 1994. Will OCBC share price rocket in the aftermath of the interest rate hike?
Conventional wisdom indicates that bank stocks should perform well in high inflationary environment as high interest rates generally lead to higher net interest incomes for the banks. This was my hypothesis when I invested in 6000 of OCBC shares in August 2021. Back then, I anticipated that US Federal Reserves would hike interest rates this year and that Singapore bank stocks would be the biggest beneficiary from the rate hikes. However, OCBC share price flatter to deceive. And I was humbled.
Till date, US Federal Reserves had raised interest rate by 150 basis points(75 basis points on 15 June, 50 basis points on 7 May and 25 basis points on 17 March). Yet, OCBC share price remained stagnant year-to-date (at the point of writing). The sluggish OCBC share price prompted me to sell when OCBC share price was trading at $12.40 in May 2022. After factoring the interim dividend of $0.25 issued in August 2021, theyield amounted to 2% (I have exited before ex-dividend in May 2022).
The nine months of holding the OCBC shares was truly a frustrating experience as DBS and UOB share prices both had robust runs in that period. In comparison, OCBC share price had been lethargic and totally lack form. Thus, I am glad to have exited at $12.40 as OCBC share price fell following the interest rate hike in May. Will OCBC share price continued to correct following the interest rate hike on 15 June? In my opinion, how OCBC share price will unfold in the coming months will depend largely on the short-selling activities on this counter.
The initial onset of the Ukraine-Russia conflict had caused short-selling volume against OCBC shares to rocket in late February. On 25 February, the short volume amounted to a staggering 8 million. On 24 February, the short volume was 7.1 million, which is higher than the 6.1 million recorded on 23 February. Prior to these, the short selling volume amounted to only 1.2 million on 22 February. The short selling attacks caused OCBC share price to plunge from a high of $13.35 in February 2022 to a low of $11.30 in early March 2022. In April and May 2022, when short selling volume hit 3 to 4 million, OCBC share price would turn bearish.
Among the three banks, OCBC is considered to be the most vulnerable to short selling activities. According to SGX Securities Borrowing & Lending Programme (SBL), investors had loaned 32 million of OCBC shares for short sellers. This amount is the highest among the three banks – DBS (10.6 million) and UOB (5.5 million). To make matters worse, SGX had lowered the lending and borrowing fees in December 2019, paving the way for short sellers to short OCBC shares at significantly lower rates. Given that OCBC share price is the cheapest among the three banks, this effectively makes OCBC shares prone to short selling attacks.
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