What’s next for the Singapore financial sector? When we published our thoughts on how to value bank stocks back at the start of October 2020, we opined that the Singapore banks were undervalued then, and could reward investors with 30% or more in returns over the next year. 20% coming from the increase in the Price-to-Book ratio (the main metric for bank stock valuation) back to the historical average, and 10% from dividends.

What a difference the past 2 months has made! Despite the rollercoaster volatility in the financial markets around the American Presidential elections in early November 2020, Singapore bank stocks held firm (validating their undervaluation), and subsequently have gained some 25%. This sharp move brings the value of bank stocks back in line with the historical average, and there are still dividends to look forward to. So while there is vindication for our view on the value of banks stocks (so far!), we certainly did not anticipate how fast and furious these gains have come!