DBS Group Holdings’ accelerated uptrend is showing signs of slowing. A hanging man formed on the candlestick chart on April 23, followed by a black candle that engulfed the entire hanging man including its shadow. In the meantime, quarterly momentum showed a negative divergence with prices and the two peaks where the second peak was higher than the first peak. While divergences can persist for some time, this divergence accompanied the candlestick chart pattern.
As a result, prices may consolidate their recent gains. Since the medium-term trend for DBS is upwards, and of course, the long-term trend is up (as evidenced by the share price performance since 2010), any consolidation or correction should give way to a resumption in the uptrend. That may imply that long-term shareholders stay put, while traders are likely to trade in and out.
DBS’s 1QFY2024 results for the three months to the end of March will be announced on May 2. As it stands, analysts polled by Bloomberg are estimating lower y-o-y and q-o-q net profit. Based on their estimates, DBS is unlikely to match its record-breaking $10 billion in net profits in FY2023 as the latest estimates on Bloomberg place DBS’s FY2024 net profit figure at about $9.79 billion.
In the past week or so, economists and other market watchers have been recalibrating their expectations of the Federal Reserve’s rate hikes. It has been well flagged that DBS is the major beneficiary of firmer interest rates as a result of its low cost and plentiful casa (current account savings account) base and its portfolio of large-cap corporates resulting in low credit costs.
Paul Diggle, chief economist at abrdn, says his base case is now for two rate cuts this year, in September and December, “given that growth and inflation are likely to moderate slightly over the second half of the year”.
However, he adds: “We take seriously the risk that there could be no cuts or even that the next move is a hike. We assign a cumulative 35% probability to ‘no landing’ and ‘oil price spike scenario’ in which policy stays on hold this year or even tightens.”
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Over in China, GDP growth in 1Q2024 came in at 5.3% which is better than expected and better than communicated by the government. The jury is out as to whether this pace can be maintained this year given the overcapacity and the results, to date, of companies and S-REITs with Chinese exposure.
Nonetheless, technically, the Lion-OCBC Securities China Leaders ETF continues to show signs of moving out of a base. This ETF represents the movement of the Hong Kong Stock Connect 80 Index. The broad picture is one where the China Leaders ETF has moved above resistance and the top of a base at $1.42 indicating a target of around $1.60 or thereabouts. This could happen over weeks, and it could materialise slowly. The target is not an immediate one.
In a report dated Apr 24, Bank of America (BofA) points out that despite the stronger-than-expected 1Q2024 real GDP growth, China’s inflation data remained disappointing. “The latest March CPI print was weak at only 0.1% y-o-y, while PPI stayed in deep deflation (–2.8%). The GDP deflator, which measures the aggregate price level in the economy, inched down to –1.04% y-o-y in 1Q2024, marking the fourth consecutive quarter of decline. With the heated discussion on China’s overcapacity problem, some are concerned that the rest of the world could be hit by deflation,” the BofA report says.
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BofA believes that China’s exports might have contributed to goods disinflation in the US and Europe, but it is not a game changer for CPI. “China can at most export goods deflation, but cannot substantially influence non-tradable prices or overall inflation in other countries, which in the long run would be determined by the monetary policy of their central banks,” BofA says.
