Singapore Banks - UOB Kay Hian 2024-07-04: Donald Trump Will Likely Be Re-elected; BUY Banks

• Banks deserve to be re-rated due to their attractive 2025 dividend yields, which stood at 6.3% for DBS and 5.9% for OCBC, despite the recent run-up. The basis of the latest spike is, however, questionable as it assumes the re-election of Donald Trump would invariably lead to higher treasury yield.
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A crisis of Biden's own making.

• President Joe Biden's unnerving performance during the Presidential Debate last Friday has raised questions about his age and suitability to serve as President. The 81-year-old mumbled and lost his train of thought at times and 50m Americans tuned in and saw the debacle live. Many donors and Democrat congressmen are worried and have lost faith.
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Will Trump's presidency lead to higher bond yields?

• Many Wall Street strategists have argued that Trump regaining the White House would lead to higher long-term treasury yields due to:
  1. Trump's plans to keep the US$1.5t tax overhaul enacted in 2017 in place when they expire in 2025. He is also exploring new rounds of individual and corporate cuts. The aggressive fiscal expansion would result in higher federal budget deficit and treasury yields.
  2. Trump's plans to institute tariffs of 10% on almost all goods imported into the US. The tariffs would increase if foreign countries manipulate their currencies or engage in unfair trading practices. The "universal" tariffs would lead to higher inflation for US consumers, which would inevitably result in higher interest rates.
• The yield for US 10-year government bonds has inched up by 14bp to 4.43% since last Friday. Higher bond yields are positive for banks. In Singapore, DBS share price, OCBC share price and UOB share price have rallied 6.4%, 4.0% and 4.0% respectively.

Counting chickens before they hatch.

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Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-07-04 SGinvestors.io

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