Negative on the Banking Sector

9 Nov 2019

Dear Fellow Investor,

These have been challenging times for Public Bank Bhd. Most analysts are negative on the banking  sector due to declining profitability. A recent Bloomberg analyst survey showed only 2 buys, 14 holds and 7 sells on Public Bank shares.

There doesn’t seem to be growth. Most analysts have cut earnings estimates for the banking sector. .  Most are forecasting that Bank Negara will cut interest rates and maintain reserve requirements. This will trim net interest margins which measures bank profitability. Reserve requirements will not be loosened which means a cut in banking profits.

Below is a chart by shareinvestor .com which tells a different story.  Ignore the technical indicators and focus on the price and volume.

Before the announcement on interest rates and reserve requirements , there was a massive wide range up bar on heavy volume. Price went up over 6 % which is an abnormal event.  Checking the Bloomberg work station  there was heavy insider buying preceding this massive move.  Foreign funds who hold 37 % of Public Bank shares were short covering. and reversing to buying.

Price over the last week has held through some profit taking meaning it is unlikely this is a false move. Maybank also had a good move up.

Subsequent to this price break, the authorities announced no interest rate hike and a reduction in reserve requirements. This is bullish for Public Bank and the banking sector .

What this means is that insiders  accumulate when news is bad and sentiment is negative. If you know how to read a price and volume chart you can get a jump on the crowd and take advantage of the crowd ignorance.

I bought Public Bank for clients on this breakout. There is no guarantee of profits but at this level the risks seem low. Public Bank has low exposure to commercial loans and is managed prudently PB has the lowest NPL (Non performing  loans)   in the Malaysian banking  industry.

Invest well and grow your wealth
Bill

Critters of the week are at the elephant sanctuary at Kuala Gandah about a 2 hour drive  from KL. This is a wonderful place to visit and take your family. There is an elephant museum and a theatre to show how elephants are rescued.