DBS Offers Leverage To Higher Rates And A Recovery In China, But Credit Remains A Concern

Buying good companies that are down on momentary hiccups is a time-tested strategy, and the nearly 40% move in the ADRs of DBS Group (OTCPK:DBSDY) since late October certainly backs that up. As provisioning seems to be tapering off and coming in well below the worst-case scenarios that sell-side analysts were batting around last summer/fall, investors have once again come back to core long-term drivers like DBS Group's strong market share in Singapore, China-driven growth potential, and leverage to higher rates and growing fee-generating businesses. 

I have long liked DBS Group, and I'm generally slow to move away from the stocks of companies I like. That said, the share price now seems to factor in high single-digit long-term earnings growth and low double-digit ROEs, so I really can't say that the shares are dramatically undervalued. There are some concerns again now, though, about credit trends, and investors interested in adding Asian banking exposure should keep an eye on these shares in case the nearly 10% pullback from the recent high stretches out a bit further.

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DBS Offers Leverage To Higher Rates And A Recovery In China, But Credit Remains A Concern

Seeking Alpha: DBS Group Gives You What You Pay For

Much as I like a bargain, sometimes you have to content yourself with paying a fair price for a very good business. DBS Group (OTCPK:DBSDY), the largest bank in Singapore (and ASEAN as a whole), rarely trades at a significant discount to fair value but the company has been a pretty solid performer over the last decade even with a major setback during the global credit crisis. The shares are likewise no particular bargain today, but I think patient investors can expect a solid high single-digit to low double-digit annual return over time.

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DBS Group Gives You What You Pay For