Banking stocks become darling of foreign investors
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By Jhoo Dong-chan
Local financial groups and banks have become one of the most favored stocks for foreign investors thanks to their high-dividend policy coupled with the latter's belief that their shares are undervalued.
Against this backdrop, foreigners have been continuously buying these shares in August sending foreign ownership of banking stock as high as 70 percent
This is in stark contrast to domestic investors' massive selling on the back of looming skepticism about the nation's financial market.
According to the Korea Exchange (KRX), foreign investors bought 156.6 billion won ($139.8 million) worth of KB Financial Group shares between Aug. 6 and 10. They also bought Woori Bank and Shinhan Financial Group shares worth 21.8 billion won and 21.5 billion won, respectively, in the period.
Despite their rush, however, shares of financial groups and banks experienced a slight decline in August because of the departure of domestic investors discouraged by a series of unfavorable external factors, including the ongoing U.S.-China trade war and a possible key rate hike.
Shares of KB, Hana and Shinhan Financial Group slid 3.5 percent, 3.7 percent and 1 percent, respectively, over five days on the KOSPI while the KRX Bank Index declined 2.6 percent from a month ago.
Because of domestic investors' exit, foreigners now account for about 70 percent of the total shares of the nation's four major financial groups.
According to the KRX, foreigners accounted for 71.35 percent of total Hana Financial Group shares as of the end of July, the highest among the nation's financial groups. Foreign ownership of Shinhan and KB reached 69.61 percent and 69.44 percent, respectively.
“Foreigners are paying attention to their underrated value. Outlooks about their third quarter earnings have been raised three time already over the last three months,” Shinhan Investment analyst Kim Yoon-suh said.
“Due to mounting uncertainties raised by external factors, their underrated value has yet to be reflected in the Seoul bourse. If the market manages to ease a portion of these uncertainties, bank shares should see a turnaround.”
According to online-based market researcher FnGuide, the nation's three financial groups as well as Woori and the Industrial Bank of Korea are expected to post 14.37 trillion won in sales and 4.76 trillion won in operating profit in the third quarter. Their net profits for the quarter are expected to reach 3.5 trillion won.
The sales outlook is up 3 percent from the previous forecast a month ago, while operating and net profits are both up more than 5 percent.
For the whole of this year, the five firms are also expected to see a 16 percent growth in sales, 25.7 percent in operating profit and 17.4 percent in net profit.
“We all understand shares of financial groups and banks are currently underrated. But I bet domestic investors won't come back to these shares anytime soon unless there is solid ground for a turnaround,” said a 34-year-old local day trader surnamed Lee.
“Not many Korea's private investors invest their money in stocks merely to obtain dividends. They want a quick return. They won't just sit around waiting for dividends to be paid.”
According to the Financial Supervisory Service (FSS), Hana Financial Group paid 490.1 billion won in of dividends to its investors in the first half of the year, up 164.5 billion won from a year ago. KB also paid 766.7 billion won in dividends during the period, up 268.8 billion won compared to last year.
Shinhan Financial and Woori Bank paid 687.5 billion won and 336.6 billion won, respectively, to their investors in the first half, the same as last year.
“Of course, about 70 percent of the dividend beneficiaries are foreigners,” said former Daishin Securities analyst and futures trader Lee Sang-hoon.
“I think the trade span of domestic investors is way shorter than that of foreigners. They immediately sell out stocks over a couple of negative factors or skeptical outlook. They should patiently look into the value of firms they invest even in downtrends.”