Money and Me: Should you follow insider buying? Centurion, UMS and Geo Energy

SPEAKER_1 (0:01)

Best of Live Well, featuring Lance Alexander.

It's not just about money, it's about you. Money and me, where wealth meets self-awareness. Only on Money FM 89.3.

Lance Alexander (0:19)

When company directors buy shares in their own businesses, investors tend to pay attention. After all, who knows a company better than the people who are running it? But does insider buying really mean a stock is undervalued? And should investors pay the same attention to institutional buying or a company buying back its own shares?

With Singapore's three local banks, DBS, OCBC and UOB, facing institutional selling pressure, attention has also turned to smaller listed companies attracting investor interest. We are looking at three Singapore listed companies this morning, Centurion Corporation, UMS Integration and Geo Energy Resources. To understand what these buying activities might tell us and whether these stocks deserve some level of consideration, we have Alvin Chow, co-founder at Dr Wealth. Good morning, Alvin.

Alvin Chow (1:20)

Hi, Lance. Thanks for having me.

Lance Alexander (1:22)

Now, as GX reported that DBS, OCBC and UOB accounted for around 80% of institutional net selling in the week ending 9th October, are we still likely to see pressure on our local banks or do you reckon that has passed?

Alvin Chow (1:40)

It's almost impossible to know what the industry investors are going to do next, right? But we do know a few other things. One is that the bank stocks have done very well this year, very exceptional. And seeing some institutions taking profits off the table, it's probably normal to let the price moderate a little bit.

So I won't be surprised if, let's say, there are more profit taking coming up.

On the other hand, we can also see that the interest rate, as you reported just now, remains elevated or even rise a little bit for this part of the year. And that is actually good for banks, as long as the economy is still growing, right? The loan books are still coming. So, banks do have some good fundamentals to rest on.

Lance Alexander (2:23)

Okay, a lot of people are still saying that they could be overvalued. Are macro factors also in the picture here? As higher US. Treasury yields, rising fuel shipping and labor costs, also raising questions about bank margins?

Alvin Chow (2:37)

Definitely, because, for example, if let's say rates are high and economy slows down, right? Then borrowing goes lower and that's where the bank's profits will get hit.

And in the US., especially when it comes to high-interest rate, the bond holdings that they have will be worth less. And that could also hurt their earnings after accounting for such paper losses, right? So that was actually what happened a few years ago. If you recall Silicon Valley Bank that actually went bust, it was because of that reason, right? Because of the rate hikes in 2022 that caused a massive paper loss. And depositors started to take their money out in masses and that caused a bank run. So as long as that doesn't happen, I think generally it should be fine, right? As long as there's no fear that's coming up. And of course, it's related to a lot of the geopolitics events that are happening in the Middle East, in Europe.

So this can have our pressure on the interest rates.

Lance Alexander (3:34)

This also, Alvin, a lot of concern about AI volatility. Could the local bank stocks be impacted by any correction in the AI cycle?

Alvin Chow (3:44)

Definitely possible, because a lot of AI companies are borrowing money in order to afford all the capital expenditure that's needed to support the development.

And if, let's say, there's a slowdown, oh, I don't need so much loans anymore, or worse is that there are some companies who borrow, who cannot return the money to the banks, and that's where these loans may sour, right? So a lot of write downs may happen, and banks of course have to take the heat. So that could also be an issue, right? But I guess for Singapore banks, they are less exposed to the AI side, as compared to the American banks, because they do provide a lot of loans to the AI companies.

Lance Alexander (4:22)

Sure. So are you seeing some investors now turning to smaller listed companies? We're seeing a shift away from bank stocks as they take profit and reinvest in new stock in these smaller listed companies.

Alvin Chow (4:37)

Based on my conversation with investors, I still get a lot of bank questions.

Is DBS a good buy now? Is it too expensive? So I guess the interest is still revolving around banks, especially given that the bank stocks has done very well this year. So humans usually tend to want to go on to the weaners. So that is the conversation still revolving around banks more.