Chart of the Day: Why Singapore banks may struggle with weaker business soon

Lack of major investment banking deals loom.

According to Macquarie Research, they believe the rally in Singapore bank stocks is looking tired and we would look to pare down holdings at current levels. 

The solid top line numbers of 1Q13 may represent a short-term top for profitability, as business activity may cool off and margins remain under pressure in Singapore in upcoming quarters.

Here's more from Macquarie Research:

The stocks are not egregiously expensive but they are trading at levels that we perceive to be slightly above fair value. This implies limited upside risk in light of our overtly bearish house strategy call on Singapore.

In our view, 1Q13 was an extremely solid quarter for DBS, and a good quarter for UOB. We were less impressed with OCBC’s results given the weakening pre-provisioning operating profit.

In any case, we believe that upcoming quarters may look weaker for all, given slowing business activity and (we assume) lack of major investment banking deals vs 1Q13.

We thus expect a repetition of the pattern of 2012, which had a strong early start with earnings momentum slowing in 2Q-4Q13.