Friday, July 1, 2022
HomePassive IncomeInvestment in OCBC is larger now.

Investment in OCBC is larger now.

During the pandemic induced bear market, as the dust was settling, within a few weeks, I made a relatively large investment in UOB. 

The plan was to get my investments in DBS, OCBC and UOB to be on equal footing with each other.

Mr. Market’s severe bout of depression provided the perfect opportunity to execute the plan.


Buying DBS, OCBC and UOB.


Three local banks, 3 REITs…

Quite simply, the plan was about diversification.

That decision turned out very nicely as UOB went on to buy Citibank’s assets in a few Asian countries. 

That move is expected to give a boost to UOB’s future earnings and could lead to a more favorable view of the local lender.

More importantly, it could also mean higher dividends in future.

This week, I decided to have a stronger focus on value and increased my investment in OCBC.

The size of this increase is around 10%.

Doesn’t sound like a lot but given the size of my investment in OCBC, it is pretty sizeable to me in dollar terms.

OCBC offers better value for money when compared to DBS and UOB, in my opinion.

Amongst the local lenders, OCBC is trading at the smallest premium to book value.

OCBC also offers the highest dividend yield and this is made more attractive by the fact that it isn’t the one with the highest payout ratio either.

With the recent purchase, OCBC has become my largest investment in the banking sector.

OCBC should continue to bring home the bacon and with a larger investment, I am looking forward to larger servings in the future.

If Mr. Market should offer me lower prices, all else being equal, I would most probably be adding to my investment in OCBC again.

I don’t know exactly why OCBC’s valuation is cheaper than DBS or UOBs’.

However, if I were to hazard a guess, I would say it is probably because of OCBC’s exposure to China.

People are generally very wary of China and investments in China in general.

It has been going on for a while now.

Alibaba, anyone?

China accounts for about 25% of OCBC’s loans.



How like that?

Has Mr. Market priced in a Chinese risk premium?

If we believe that China is going the way of the Dodo, then, maybe, we should avoid investing in OCBC for now.

If we believe that the negativity towards China and, to a smaller degree, OCBC is overdone, then, we want to stay invested.

Having said this, objectively, I will continue to look out for opportunities to increase my investments in all three local banks as I believe they will continue to shine.

In fact, with interest rate rising, unless we see a deep and long lasting recession, all three local lenders should shine even brighter.

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