Overview of the 50 bp Rate Cut:

• The 50 bp rate cut announced recently was in line with market expectations.
• Following this announcement, U.S. investors reacted by “Selling The Rate Cut News,” which led to some market fluctuations.
• The rate cut marks the beginning of the rate-cutting cycle, with another 50 bp cut expected by the end of 2024 and an additional 100 bp cut forecasted by the end of 2025.

Impact on Singapore Banks:

• Singapore’s banking sector, including DBS, OCBC, and UOB, has been rated as “Neutral”.
• This stance reflects the expected impact of lower interest rates on banks’ net interest margins (NIM), which could be pressured by the ongoing rate cuts.
• Despite this, Singapore banks remain fundamentally strong, and the neutral recommendation suggests that their current valuations account for these anticipated changes in the interest rate environment.

Investment Recommendations:

• Investors are advised to “Add/Accumulate” fixed income proxies such as REITs during periods of weakness.
• This recommendation is driven by the fact that REITs typically benefit from a lower interest rate environment, as their cost of capital decreases, potentially leading to higher yields and stronger performance.

The combination of further rate cuts and the current market sentiment indicates a strategic opportunity for investors to pivot towards fixed income assets like REITs, while adopting a neutral stance on the banking sector

Thank you