Bank Stocks Emerging as an Alternative to Jojeongjang

Interest Rate Hike Benefits: 5.04% Rise This Month... Foreigners Net Buy 255 Billion Last Week

[Asia Economy Reporter Song Hwajeong] Amid ongoing stock market adjustments, bank stocks have recently outperformed the KOSPI returns, emerging as an alternative during the correction phase.

According to the Korea Exchange on the 8th, the KOSPI banking sector index rose 5.04% this month, surpassing the KOSPI's 0.44% increase during the same period. The banking sector index has risen for four consecutive days recently.

Choi Jungwook, a researcher at Hana Financial Investment, said, "Bank stocks have outperformed the KOSPI by about 7.5 percentage points over the past two weeks." He added, "The U.S. 10-year Treasury yield fell during the recent holiday, leading the KOSPI to rebound. However, disappointment over Federal Reserve Chairman Jerome Powell's remarks, which did not present a clear interest rate stabilization plan, caused U.S. Treasury yields to rise again, resulting in the KOSPI giving back its gains later in the week. In contrast, bank stocks are perceived as beneficiaries of rising interest rates and have continued their excess gains during the market correction phase."

Notably, foreign investors, who sold more than 1 trillion KRW net in the KOSPI last week, net purchased 255 billion KRW in bank stocks. Foreigners bought the most of KB Financial Group with a net purchase of 121.9 billion KRW last week. Additionally, Hana Financial Group and Shinhan Financial Group were also among the top net purchases with 53.4 billion KRW and 50.5 billion KRW, respectively. Despite nearly 1 trillion KRW net selling pressure from domestic institutions in the KOSPI, bank stocks saw about 50 billion KRW net buying. KB Financial Group rose 7.31% this month, supported by foreign buying. As of 9:12 AM on the day, it recorded 48,700 KRW, up 1,700 KRW (3.62%) from the previous day, hitting a 52-week high.

Improvement in Net Interest Margin (NIM) is also drawing attention. NIM has been declining since its peak in Q2 2018 until recently. Baek Doosan, a researcher at Korea Investment & Securities, said, "Some banks' NIM improved for the first time in Q4 last year, and a meaningful rebound is expected across the banking sector in the first half of this year." He forecasted, "Compared to the previous quarter, the industry's NIM will improve by 4 basis points (1bp = 0.01 percentage points) in Q1 and 2 basis points in Q2 this year." Baek added, "Since bank stocks have been undervalued and face no valuation burden, their prices will respond flexibly to NIM movements."

Since the interest rate momentum is unlikely to disappear immediately, the upward trend in bank stocks is expected to continue. Researcher Choi said, "Bank stocks are almost the only sector whose stock prices have not risen compared to before COVID-19," and added, "Given that foreign investors' buying momentum in bank stocks will continue mid- to long-term due to interest rate momentum, bank stocks will ultimately be the sector with excess gains throughout this year."