Financial Stocks Alone Fire Opening Salvo with New Highs in Sideways Market Movement

Rising Interest Rate Beneficiaries Gain Strength
Boosted by Dividend and Earnings Expectations

[Asia Economy Reporter Song Hwajeong] As the market continues to adjust and shows a sideways trend, financial stocks are soaring, hitting new record highs day after day. It appears that dividend and earnings expectations are driving the stock prices upward.

According to the Korea Exchange on the 1st, Meritz Securities, Meritz Fire & Marine Insurance, and Meritz Financial Group all recorded 52-week highs early in the trading session. They broke their 52-week highs for two consecutive days. Meritz Securities rose to 4,625 KRW during the session, setting a new 52-week high following the previous day, while Meritz Fire & Marine Insurance and Meritz Financial Group reached 19,450 KRW and 17,050 KRW respectively, also hitting new 52-week highs.

Hanwha Investment & Securities also rose more than 10% early in the session, surpassing 5,000 KRW intraday and setting a new high for the second consecutive day. In addition, KB Financial Group, Hana Financial Group, and Daishin Securities recorded 52-week highs the previous day, continuing the streak of financial stocks hitting new highs.

While the stock market is undergoing adjustments, financial stocks are standing out. Last month, the KOSPI fell by 1.23%, but the KOSPI Financials Index rose by 6.24%, with banks up 7.93%, securities up 5.77%, and insurance up 6.42%.

Financial stocks are considered beneficiaries of rising interest rates, and combined with dividend and earnings expectations, this has led to strong stock performance. Koo Kyunghoe, a researcher at SK Securities, said, "The recent strength in bank stocks due to rising interest rates is following a pattern similar to 2016-2017," adding, "At that time, rising interest rates expanded banks' net interest margins (NIM), increasing profits and causing bank stocks to significantly outperform the market returns."

Among bank stocks, KB Financial Group and Hana Financial Group are showing particularly strong momentum. KB Financial Group has risen 32% since the beginning of the year, and Hana Financial Group has increased by 28%. Kim Eungap, a researcher at IBK Investment & Securities, said, "KB Financial Group's consolidated net profit for the first quarter of this year is expected to increase by 40.3% year-on-year to 1.23 trillion KRW," and added, "Bank stocks are recovering investor sentiment based on rising interest rates and forming upward momentum, with KB Financial Group benefiting as a leading stock in the sector."

Kim In, a researcher at BNK Investment & Securities, said, "Hana Financial Group is expected to achieve a record high controlling shareholder net profit of 2.7 trillion KRW this year due to the rise in NIM from the first quarter, the effect of high loan growth average balances, an increase in interest income which is the core profit of banks, and a decrease in loan loss provisions due to the elimination of conservative additional reserves," adding, "Along with this, starting with an expanded semi-annual dividend, the dividend yield is expected to be high at 5.8%."

Insurance stocks are expected to show solid performance in the first quarter. Kang Seunggeon, a researcher at KB Securities, said, "Reflecting the absolute level of interest rates and the sustainability of the rising interest rate trend, we have upgraded the investment opinion on the insurance sector to outperform the market (Positive)," explaining, "Non-life insurers are expected to exceed consensus by 18.7% in first-quarter earnings due to improvements in automobile and long-term risk loss ratios, while life insurers are projected to post profits 22.9% higher than consensus due to increased contributions from underwriting profits and investment segments."

Meritz Fire & Marine Insurance is particularly expected to stand out. Researcher Kang said, "Meritz Fire & Marine Insurance is expected to have a faster decline in combined ratios through improved expense ratios compared to competitors in the first quarter as well," adding, "Meritz Fire & Marine Insurance's standalone net profit for the first quarter is expected to be 115.5 billion KRW, a 7.3% increase year-on-year, exceeding consensus by 15.9%."