FAVOURABLE analyst reports have failed to stem a slide in DBS Group's share price.
During the week, the stock slipped briefly into "technical correction", as its share price fell by as much as 10 per cent from its recent high of $17.41 reached on Jan 20. This is despite DBS attracting 25 buy calls out of the 27 analysts covering the stock, according to Bloomberg data.
Yesterday, it added 17 cents to $15.83, giving it a gain of 10 cents or 0.64 per cent for the week.
In contrast, United Overseas Bank, another big player on the local scene, had stayed almost flat over the same period.
This leads to traders wondering if DBS' big exposure to trade-finance loans in China may be the reason for its price weakness, given the stability in UOB's share price. Indeed, China risk is a concern which also bedevils other big regional lenders such as Standard Chartered Bank (SCB) and HSBC.
It follows bad news such as Shanghai's Chaori Solar Energy Science and Technology defaulting on its bond payment - the first such default by a Chinese state-owned company in decades. This has fuelled fears that the mainland banking system may face a bad debt crisis that could ensnare foreign banks that are significant lenders there.
For the past month, SCB has fallen about 9.7 per cent, while HSBC is down almost 9 per cent. This is comparable to the decline registered by DBS in percentage terms, albeit over a shorter time span.
In a recent report, Citi Research analyst Robert Kong noted that DBS has $18 billion of yuan loan exposure in China. About $12 billion, or two-thirds, of the exposure is due to trade. "Our conversations with DBS suggest management is comfortable with its China exposure. 2013 trade loans grew $10 billion; $7 billion were yuan-denominated," he said.
In a separate report, Barclays Equity Research analyst Sharnie Wong alluded to the risks facing the Hong Kong banking sector - where DBS is a big player - arising from its credit exposure in China.
She wrote: "The Hong Kong banking sector has HK$3.5 trillion (S$577 billion) of credit exposure to mainland China, including both on and off balance sheet items (letters of credit, guarantees and undrawn commitments)."
On a net basis, Hong Kong supplies about HK$2.2 trillion of liquidity to mainland China. "While this is small in the context of China's large banking system, the liquidity drag to Hong Kong is material, equivalent to 24 per cent of Hong Kong's system deposits," she added.
Seen in this context, it is possible that any rumble of the mainland banking system may have a snowballing impact on Hong Kong. This is likely to be a worry among fund managers with big exposure to lenders with big Hong Kong exposure.
So it is not surprising to find traders are giving positive news such as DBS' acquisition of Societe Generale's Asian private banking business the skip, even though analysts have given it the thumbs up.
No doubt the deal gives DBS a leg up in building its wealth management business. But it is tough for DBS to escape feeling the heat when lenders such as SCB and HSBC come under selling pressure.
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