Carmen Lee, head of OCBC Investment Research, expects banking analysts to start revising upwards their full-year earnings forecasts for Singapore’s three banks in January after the holiday season.

Last night’s 25 basis point (bps) US Federal Reserve rate cut was accompanied by officials’ expectations of just two more cuts in 2025, fewer than previously forecast. In September, the Fed had projected four 25bps cuts next year.

Carmen Lee, head of OCBC Investment Research, expects banking analysts to start revising upwards their full-year earnings forecasts for Singapore’s three banks in January after the holiday season. She adds that she may increase her own forecast to “single-digit” y-o-y net profit growth, up from “flat or slightly negative” y-o-y changes currently. 

Speaking at a media briefing on Dec 19, Lee says the return to “higher for longer” rates in a bid to quell stubborn inflation in the US is a positive for banks. She thinks Singapore's banks will finish 2025 strong with “much better results” on both interest and non-interest income. 

“[Their] net interest income is not going to come down as much, but yet [they also have their] fee income, which was supposed to help mitigate [that fall in interest rates]. So, now, you get a little bit of a bump,” she adds. 

Higher fee income — in the double digits — will come from growing regional operations and wider footprint in the wealth and credit card businesses, notes Lee.

Lee has “hold” calls on DBS Group Holdings and United Overseas Bank U11 (UOB), with target prices of $45.20 and $37.50 respectively.  

That said, the return of Donald Trump to the White House on Jan 20, 2025 remains the biggest wildcard. “Once he comes to power, these things can change overnight,” says Lee of her forecasts. “I had never worked harder than I did when he was president; day and night, you’re working and changing your forecasts, because every night he tweets about a different thing.”

Later today, OCBC Global Markets Research, led by the bank’s chief economist Selena Ling, will release their house view on the number of rate cuts expected in 2025. 

STI to 4,100?

2024 has been an “unusual” year, says Lee, with nearly all asset classes up by double digits year to date. As at Dec 13, gold prices had risen 28.4% while the MSCI World Index and S&P 500 had risen by 20.4% and 26.9% respectively. Bond indexes rose in tandem, though to a smaller degree. 

“Honestly, to expect the same kind of performance in 2025 will be unrealistic,” says Lee. Bitcoin, too, surged this year thanks to Trump, but Lee says she is unable to comment on cryptocurrency.

Closer to home, Singapore’s three banks have outperformed in 2024, bringing the Straits Times Index (STI) to a 17-year high of 3,822.68 points in early December. This is near its all-time high of 3,906.16 points, notched in October 2007.  

After the STI’s “stellar” performance in 2024 with a 17.6% gain, however, it will be “more challenging” to expect another year of strong double-digit performance in 2025. Still, Lee expects the Singapore market to remain resilient and favoured for its high dividend yield, which stands at an estimated 4.8%. 

Valuations are “not excessive”, says Lee, with price-to-earning (P/E) and price-to-book (P/B) ratios below their 10-year historical averages. She also thinks a “modest single-digit earnings per share growth is likely in 2025”. Consensus estimates place the STI’s projected 2025 EPS at 326. 

Consensus estimates also forecast the STI to reach 4,100 points in 12 months’ time, which will mark a new historical peak for the index. 

‘Hunting’ for REITs

For now, Lee says she would “go into the REITs space to hunt”. “Even though rates are going to stay high, the dividend yield itself is actually fairly interesting.”

In particular, Lee highlights three names from the CapitaLand family as her top picks: CapitaLand Ascott Trust Hmn (CLAS) with a fair value of $1.06, CapitaLand Ascendas REIT A17u with a target price of $3.32, and CapitaLand Integrated Commercial Trust C38u (CICT) with a fair value of $2.41.

She also selects Frasers Logistics and Commercial Trust (FLCT), with a target price of $1.28; and Parkway Life REIT, with a target price of $4.49.

Lee notes that Singapore’s six-month T-bills drew an average of $14.7 billion at each auction, with an over-subscription rate of 2.2 times. “This means that there is excess liquidity in the market, with about $8.1 billion per auction looking for better returns in the Singapore market.”