Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
Overshadowed by KOSPI rally, bank stocks pin hopes on rate hikes
ATMs of major banks are installed in Seoul, March 8. Yonhap
By Jun Ji-hye
Banking stocks have largely remained on the sidelines despite the KOSPI’s record-setting rally this year, according to Korea Exchange (KRX) data Monday.
Analysts said investor attention and liquidity have flowed heavily into brokerage firms and other market beneficiaries, leaving bank shares, often regarded as defensive investments, struggling to keep pace with the broader market.
Still, they believe the banking sector may be poised for a rebound, supported by expectations of interest rate hikes in the second half, more proactive shareholder return programs and relatively low valuations despite solid earnings power.
According to KRX industry indices, as of Friday, the banking index gained only 14.46 percent this year, lagging far behind the KOSPI’s 101.13 percent rally over the same period.
The semiconductor index surged 163.34 percent and construction stocks advanced 96.22 percent, while other financial sectors such as brokerages and insurers posted solid gains of 67.9 percent and 44.56 percent, respectively.
Reflecting the sector’s weak share performance, the combined market capitalization of banking stocks shrank to around 193 trillion won ($127.5 billion) as of Friday, down from more than 233 trillion won at its peak.
The KRX banking index comprises 10 companies, including KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Financial Group, Industrial Bank of Korea and KakaoBank.
Market watchers said bank stocks have struggled largely because investor money has been heavily concentrated in semiconductor heavyweights such as Samsung Electronics and SK hynix, while lenders have lacked compelling catalysts to attract fresh buying.
“The prolonged concentration in select KOSPI names prompted even domestic institutional investors, including insurers and asset managers, to join the net selling of bank stocks in pursuit of stronger returns,” said Choi Jung-wook, an analyst at Hana Securities. “Falling U.S. Treasury yields, driven by rising expectations of a ceasefire between the United States and Iran, have been another factor in bank stocks’ relative underperformance.”
According to KRX, institutional investors bought around 2.8 trillion won worth of KOSPI stocks last week while posting net sales of 105 billion won in banking shares.
Despite weak near-term sentiment, expectations are building that the sector could stage a recovery later this year with increasing prospects for monetary tightening.
A second-half rate hike is now being priced in as a result of hawkish comments from newly-appointed Bank of Korea Gov. Shin Hyun-song.
Speaking after his first Monetary Policy Board meeting on Thursday, Shin said, “When considering inflation, economic growth, the exchange rate and housing prices, the policy direction is clear. We will manage these pressures through increases in the benchmark interest rate.”
Stronger shareholder return initiatives and the perception that banks remain undervalued relative to their fundamentals are also supporting expectations for a rebound in bank stocks.
“Banks are becoming increasingly attractive to investors due to their solid profit-generating capacity and easing capital regulations,” Jo Ah-hae, an analyst at Meritz Securities, said. “Lenders continue to offer tax-free and separately taxed dividend programs and are expected to unveil additional share buyback plans for the second half when reporting second-quarter earnings.”