Banks

Banks: HSBC upgrades UOB & DBS to O/W from U/W with the UOB its top pick for the sector. Also upgrades OCBC to Neutral from U/W. From an ASEAN banks perspective, Spore remains its preferred market given relatively undemanding headline valuations & lack of macro & political uncertainty. Highlights that having underperformed the domestic market & regional peers in 2010, valuations for Spore banks look relatively undemanding with the sector trading at an average 1.5x 2011 P/B and 13X 2011 P/E.

Coupled with a decent 4% average dividend yield, downside to stock prices is limited. Adds normalising interest rates will be a positive catalyst as it believes rates unlikely to stay low for a protracted period. House raises its sector earnings forecast for 2011 & 2012 by 5-6% to reflect stronger NIMs & credit growth.