Singapore bank shares hit amid Hong Kong unrest and trade war

Singapore

SHARES of Singapore banks were hit on Monday amid a broader market selloff, on the back of escalating trade tensions between the US and China and intensifying unrest in Hong Kong.

By the end of the trading session, the shares of DBS, which went ex dividend on Monday morning, had fallen 3.66 per cent to S$25.29. Shares of OCBC lost 1.16 per cent to S$11.08, while shares of UOB slipped 0.35 per cent to S$25.91. These falls weighed on the benchmark Straits Times Index, which shed 2 per cent on Monday.

Asked last week about the impact of the Hong Kong uncertainty, DBS chief executive Piyush Gupta noted that while the bank had not yet felt an impact on its loans business in Hong Kong, there was risk from prolonged uncertainty.

Referring to any impact on the corporate and loan business from the Hong Kong situation, he told reporters during the second-quarter results briefing: "We are not seeing it. But if the uncertainty is prolonged and affects consumer and business investment confidence, there may be some impact on our business."

Total income and net profit from DBS' Hong Kong operation in the first six months contributed about 20 per cent of the group's total income and total net profit for the period.

OCBC's chief Samuel Tsien, asked last week whether the Hong Kong situation was keeping him up at night, sounded a note of confidence in Hong Kong being able to resolve the unrest.

"The Hong Kong situation will be able to be addressed between both the authorities and people in Hong Kong," said Mr Tsien, who was born in Shanghai, but grew up in Hong Kong. "We continue to feel that they will have the ability to address their concerns."

Asked similarly about the impact of the Hong Kong situation on the bank's business, he said the bank's overseas expansion in the past decade has shielded it against overdependence on a particular market.

DBS said services at all its Hong Kong branches were temporarily suspended from Monday afternoon, with safety of its employees a "top priority", its spokesman said. "Customers were advised to make use of online and mobile banking for banking services." DBS has branches in about 25 locations in Hong Kong.

OCBC Bank's head of group brand and communications Koh Ching Ching told The Business Times that all 56 OCBC Wing Hang Bank branches and OCBC Wing Hang Credit branches were open on Monday.

"In the afternoon, when protests began to take place at some locations, nine bank branches and seven OCBC Wing Hang Credit branches in these locations had to close one to two hours earlier to ensure the safety of our customers and employees. We asked our employees to leave earlier as longer travel time may be needed to reach home. For colleagues who had to stay to perform critical banking operations, we arranged for cars to bring them home after work."

Hong Kong has been gripped by clashes between protesters and the police, with city-wide protests ignited in early June by a widely panned - and since withdrawn - extradition Bill proposed by the Hong Kong government. The Bill would have allowed criminal extradition to the Chinese mainland.

Protesters in Hong Kong on Monday looked to bring the financial centre to a temporary standstill as they disrupted the train lines that carry some five million passengers a day. Air traffic controllers joined a city-wide strike; the media reported that more than 200 flights at Hong Kong International Airport were cancelled.

Press comments from Hong Kong's pro-Beijing chief executive Carrie Lam in the morning that labelled the recent protests as a "very dangerous situation" may have fanned more anger through the day. The crowd of demonstrators swelled into the thousands in the afternoon across several districts on the island, reports said.

The clashes have already hurt the economy. Hong Kong's whole-economy purchasing managers' index for July plunged to its lowest reading since March 2009, data from IHS Markit showed on Monday.

The market was also likely roiled by US President Donald Trump's announcement on Aug 1 of a 10 per cent tariff on the remaining US$300 billion in imports from China from Sept 1. This, which he announced in a tweet, came despite what he deemed as "constructive" talks between the two sides.

The move is "scotching the prospect of stabilisation" into the second half for businesses, as reflected in July's purchasing managers' index out of Asia, said a JPMorgan report on Monday.

"Just when things were settling down..." the report said. "The expected stabilisation and modest recovery in emerging Asia during the second half of 2019 is not likely to materialise, with growth in China and in the trade-dependent economies revised down this past week."

The report said that while there will likely be beneficiaries as supply chains adjust, the net impact is more likely negative than positive in the near term. It noted that, aside from the impact on regional trade flows and growth, the products under the US$300 billion tranche are likely less substitutable than the prior tariff baskets, with China providing the largest share of these shipments to the US.

"Unlike the experience to date, other exporters may not be able to plug the gap immediately, suggesting a more severe price and volume adjustment than in the prior instances."

OCBC's Mr Tsien further pointed out during the bank's results briefing last Friday that the migration of supply chains to Asean is unlikely to be as significant as expected. Real investments coming from new companies migrating over are lacking, partly as the whole supply chain - such as smaller vendors - has to move along with an anchor company.

"Trade tariffs have expanded not just between China and US, but also between US and some other Asian countries recently. Companies now have to give more thought, to see if the way to migrate is really to South-east Asia, or they've got other long-term plans... perhaps migrating back into the markets in which they sell."

Striking a more upbeat tone, UOB chief executive officer Wee Ee Cheong said at a results briefing last week that the bank will continue to tap Greater China flows coming through to Asean, with Singapore still an attractive hub for the region.

"The near-term outlook may be uncertain," he said. "But Asia is in a relatively bright spot. Fundamentals are resilient."

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