Share prices of US banks have underperformed relative to Singaporean banks and some Chinese financial sectors in recent periods.
The one macro risk affecting everyone globally, albeit unevenly, is the Middle East tensions and rising oil prices, which are hurting risk sentiment and increasing recession fears.
Bank stocks are a barometer of economic health and are highly cyclical. Sometimes they sell off early when growth fears rises.
Here we look at some of the country-specific reasons across the US, Singapore and China that may explain why US banks are underperforming their Singapore and China counterparts.
1) USA Banks
The broad based Financial ETF (NYSE:XLF) is down 10% this year. It includes the usual names such as Bank of America, Goldman, Wells Fargo, Morgan Stanley, Citigroup as well as other financials such as Berkshire, Visa and Mastercard and American Express.
The first reason is fears over the Banks’ credit risk and potentially inadequate allowance on it.
U.S. banks lend to a range of sectors and are exposed to private credit and leveraged lending. The two sectors that are currently at the forefront from a risk perspective are Commercial real estate and Technology sector.
Commercial real estate prices have been experiencing a continuous downturn, particularly in the office sector, driven by a convergence of high interest rates, shifting work habits, and an oversupply of space.
Technology bonds, particularly those from major AI hyperscalers, are facing increased risk as a massive influx of new debt issuance, estimated to reach $950 billion over three years, is fuelling investor anxiety. While these companies boast strong cash flows, the AI arms race is driving record borrowing, which could lead to credit market volatility, higher spreads, and potential downgrades if AI investments fail to deliver promised returns.
The second reason is the possibility of a higher interest rate environment
The market is now pricing in a chance of a Federal Reserve rate hike this year as compared to several cuts just a couple of months ago. Yields have surged as a result with some analysts now anticipating at least a quarter-point increase in 2026.
This is due to rising fears of higher inflation in the US, driven by Middle East conflict, surging oil prices, and tariff policies. This is in spite of specific sectors facing deflation such as on core goods. Services inflation has also eased.
2. China Banks
The barometer for the China banks are the Big 4 China banks, namely Industrial and Commercial Bank of China (ICBC) (1398.HK), China Construction Bank (CCB) (0939.HK) Bank of China (BOC) (3988.HK) and Agricultural Bank of China (ABC) (1288.HK).
Of the four, the first three are in positive territory on a year to date basis while ABC has fallen about 10% this year. Chinese banks already trade at low valuations with weak growth expectations and have less room to fall vs US banks that are priced for strength and growth.
China has a different set of macroeconomic issues. The country is facing deflationary pressures and interest rates are low.
China’s consumer price index (CPI) rose by 1.3% YoY in February 2026, up from 0.2% in January, showing signs of mild inflation. Despite this, persistent deflationary pressures remain, with the government setting a conservative ~2% inflation target for 2026 to bolster weak domestic demand and combat sluggish consumer confidence.
China’s producer price index (PPI) was on a decline in the last few years as Tariffs meant that Chinese goods were being sourced or finished elsewhere. PPI for February 2026 fell by 0.9% YoY, a narrower decline than January’s 1.4% drop, reflecting easing deflationary pressures. PPI is improving as new and emerging sectors are leading the demand previously in place for traditional goods.
The Chinese banks all have strong balance sheet and asset quality. However their net interest margin (NIM) have been declining. For reference, Bank of China’s NIM was 1.44% as of June 2024 and 1.26% as of June 2025, a decline of 18 basis points.
The banks are due to release their financials for December 2025 soon and the NIM will be keenly watched. Even though rates on deposits have declined, the lending rates have also declined which means that the NIM may compress further.
Although the market assumes implicit state backing, the China banks themselves have to also provide backing downstream.
Although private credit lending isn’t so much of an issue, the banks still face risks from other sectors such as real estate and manufacturing. China is also weathering the energy crisis better due to self reliance with large reserves across sources such as renewables and coal. China has some oil production and also continues to import from certain allies.
3) Singapore Banks
Singapore banks do not have much private credit exposure and have may enjoy a net inflow due to Singapore’s positioning as a safe haven location from many perspectives. There could also be wealth inflow from the Middle East now with the conflict testing Dubai’s positioning as a financial hub as well as its attractiveness as a hub for family offices.
Of the 3 local banks, DBS has been the best performer in recent years, but OCBC is actually the better performer this year to date amongst its peers.
The Singapore Dollar is also a safe haven currency, seeing strong demand. This has resulted in the overnight SORA interest rate bench mark hovering at around 1% to 1.1% with the 3-month compounded at a similar rate. In comparison, the US 3M SOFR is around 3.7%. The NIM for the 3 local banks now range just under 2%.
This positions the Singapore banks well for the defensive and dividend theme, appealing to risk adverse investors.
Closing statements
The divergence comes down to a mix of macro positioning, balance sheet exposure, and investor flows. It’s less about how one country or system is “better” and more about where each region sits in the cycle.
At the end of the day, the banks are macro-centric plays as significant entities, whether locally or globally. The sector’s performance is driven by factors such as the interest rate environments, dividend yields, regulatory pressures, and exposure to specific economic risks such as commercial real estate and tech debt.
However, there are differences for each country. The US Banks are in a high interest environment looking towards a rate cut while the China and Singapore banks are at the lower end of the interest rate range. The US is in the late part of the cycle. China has tailwinds from the central government policies and is trading at low valuations while Singapore is viewed as a stable income play.
While there isn’t a best country now, there is a clear choice based on preference.
The Singapore banks provide the best safety coupled with dividends.
China banks are for investors who have a little more risk appetite. Although China banks have even better dividend yields and are policy backed, there is weak growth and some would say that transparency is low in China.
The US banks are actually a contrarian play in the near term. Many of the US banks such as JP Morgan are globally significant and will benefit if fears of interest rate hikes and recession eases.
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