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Where To Invest Amidst The Banking Crisis

Calvin Lo

All eyes continue to be on the banking sector in the US and Europe. So far, regulators seem to have averted a full-blown financial system contagion and collapse. In Switzerland, the Swiss authorities have strong-armed UBS to acquire Credit Suisse, with assurances. Over in the US, First Citizen agrees to buy Silicon Valley Bank, which was the first domino to fall. These moves have so far been greeted by a sigh of relief by investors, with bank shares recovering some ground after huge drawdowns.

However, that doesn’t mean that we’re out of the woods yet. Even the Fed held back on faster rate hikes with just a 25 bps raise last week despite hotter than expected inflation figures released this month. A full-blown banking crisis would probably push the global economy into recession, one that might be deeper than the shallow one most investors are expecting (based on inverted yield curve).

Despite all that’s happening, as a long-term investor I’m always still looking out for opportunities to deploy cash from my regular income into productive assets. The noise might be getting louder, but the music never stops (hopefully not).

Here are some places I’m considering to invest in:

  • Safety in government bonds
  • Small position in gold
  • Opportunistic buys in blue-chip banks
  • Speculative bets in European financials or US regional banks

Also posted a video explaining more details my thought process and where I’m putting my money:

Government Bonds

When there’s risk of a crisis where even cash in the bank is not safe, there’s the relative safety in government bonds. Caveat is the government in question has to be stable and credit-worthy as well. Thankfully, here in Singapore our government has the strongest credit rating as determined by international credit rating agencies. So, Singapore government bonds are probably as close as you can get to a risk-free investment.

Source: MAS

If safety is a priority, you can consider government bonds like Singapore Savings Bonds (SSB), Treasury bills, or SGS bonds. SSB are relatively liquid (can be redeemed early without penalty within a month) but offers lower yields than T-bills and SGS bonds which are less liquid.

Personally, I’ve been buying SSBs and will also be applying for this month’s SSB offering 3.15% average 10-year yield.

See also my SSB Tracker

Alternatively, you can also consider bond ETFs like the ABF SG Bond ETF (SGX:A35) or iShares 20+ Year Treasury Bond ETF (TLT). Note that bond ETFs prices will fall if interest rates rise, and unlike individual bonds, ETFs don’t have a maturity date when you can get your principal back in full.

Gold

Gold is usually viewed as a safe haven and benefits during times of uncertainty. Think of gold as insurance against black swan events. In this environment of high inflation, possibly close to the end of the rate hiking cycle, risk of banking contagion, and possibly recession all supportive of a case for some exposure to gold.

That said, too much gold may not make your portfolio glitter, since gold tends to underperform equities over the very long term.

You can gain exposure to gold through the SPDR Gold Shares ETF (GLD or SGX:O87) or through the OCBC Precious Metals Account.

I do hold a puny amount of gold with OCBC PM account, but I’ve yet to go into gold in any substantial way.

Blue-Chip Banks

Turmoil in the relatively smaller US banks like Silicon Valley Bank (SVB), Signature Bank and First Republic Bank has resulted in depositors flocking to the bigger banks like JPMorgan and Wells Fargo. SVB failed due to a combination of concentrated exposure to tech companies (as depositors) and long-dated securities (as investments).

However, bigger blue-chip banks are generally more diversified in both their depositor base and investment instruments, not to mention higher capital reserve ratio requirements and closer scrutiny by regulators. So it seems depositors do indeed feel safer moving their cash from smaller banks to the big boys.

You can gain exposure to blue-chip US banks through the Invesco KBW Bank ETF (KBWB) which holds JPMorgan, Citigroup, Bank of America, Wells Fargo, and US Bancorp in the top 5.

Personally, I’ve a relatively large position in Singapore’s largest bank DBS (SGX:D05), which was named the World’s Best Bank for the 5th consecutive year.

European Banks or US Regional Banks

Lastly, if you’re in a speculative mood, you could also consider investing in crisis-stricken banks if you believe the worst is over and that the regulators have managed to avert a full-blown banking crisis. However, be aware of the substantially higher risk in doing so (I would consider them speculative).

Many remember how Warren Buffett invested in Goldman Sachs in 2008 and Bank of America bank in 2011 during times of crisis, and subsequently made a killing. Need I remind you though, that you and I are no Warren Buffett (no offence).

You might be better served through an ETF like the iShares MSCI Europe Financials ETF (EUFN) for European financials (not only banks) or the SPDR S&P Regional Banking ETF (KRE) for US regional banks.

Personally, I’m not a value investor and I haven’t done well trying to bottom-fish so I won’t be looking to touch European financials or US regional banks.

What are you buying during this banking crisis?

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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2 thoughts on “Where To Invest Amidst The Banking Crisis”

  1. Pingback: Portfolio Update March 2023 – Portfolio Rallying Along With Markets | Finance Gnome
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