Strategic Insights: Interest Rates May Remain Elevated – Are Bank Shares Still a Buy?

As part of a new series showcasing insights from top financial experts, this article was contributed by financial strategist and founder of Weipedia, Wong Kon How.

Inflation and interest rates may remain elevated

On 12th June, the European Commission announced it would set provisional duties of up to 38.1% on imports of Chinese electric vehicles. This action may potentially start a trade war with China, adding further supply chain stress to the existing US-China trade war, Middle East crisis, and Russia/Ukraine war. Consequently, inflation may remain sticky, and interest rates are likely to stay elevated even with a potential rate cut this year. Therefore, the question arises: are bank shares still a buy?

The US has more than 4,000 banks

Among the top 8 US banks, 3 are still trading below their levels from the US banking crisis in March 2023. 

Source: TradingView 

US banks faced trouble due to higher interest rates, especially when yields inverted from July 2022 until today. If 3 out of the top 8 banks are still trading below their March 2023 crisis levels, it indicates that US banks are still under pressure. 

What about the US top 100 banks from the bottom? 

Source: TradingView 

All of them are trading below their levels from the March banking crisis. Therefore, it is not true that banks will benefit from a higher interest rate environment. 

Asian banks may be riding the wave this time As Southeast Asia becomes a top choice for firms diversifying supply chains amid US-China tensions, the banking sector is likely to benefit from this influx of funds, especially in financial hub countries like Hong Kong and Singapore. Therefore, I set out to investigate the top banks listed on SGX and HKEX. 

Source: TradingView 

According to a report by ASEAN Briefing, Singapore has been “a preeminent destination” for firms looking to set up regional headquarters and expand across the region. Although the inverted yield curve may persist, which poses challenges for banks, if they can manage these risks and continue to serve as a banking gateway for many, I prefer banks in this region.

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