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BCIP: Banks in a rising interest rate environment, US-China trade wars

I started building my child’s college fund when she was 6 months old. All her 红包’s are channeled straight into this OCBC account, and I registered for their Blue Chip Investment Plan (BCIP). It’s a monthly investment scheme into a blue chip stock of choice. Both Ms EOR and myself contribute monthly to this BCIP account, which is an excellent way to force us to invest. The rule is, do not sell anything from this account.

In a rising interest rate environment, defensive stocks and REITs are to be de-prioritized. In such an environment, the spread between interest rates and dividend yields narrows, causing selling pressure on such asset classes. Banking stocks do well in rising interest rate environments, so now is the time double down and load up.

Current sector allocation. It’s time to add financials in.

DBS

The biggest and strongest bank in Singapore. They are leading the pack in digitization and building a digital bank presence. Just read their recent earnings release here.

“DBS first-quarter net profit up 26% to record SGD 1.52 billion, return on equity rises to 13%, highest in decade”.

Yet their stock price still dropped about 3% over 2 days, because it missed analysts’ expectations. Um ok… can’t dispute the bold headline above, so it’s time to load up for the remainder of 2018. With the recent ABSD announcement, I’d expect mortgage loan sales to take a hit, and also the US/China trade wars are battering the banks shares.  There should be good buying opportunities for the remainder of 2018.

The beauty of dollar cost averaging is that time is on your side. You don’t have to time the market so precisely. Let time work for you.

Read the previous article on BCIP here.

I’ll review this portfolio every year, unless the environment changes.

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