[Created using Gemini]
[Created using Gemini]

Bank stocks have been left behind as the Kospi stages an all-time high rally this year. With capital flooding into brokerage shares — the more direct beneficiaries of a bull market — the defensive appeal of bank stocks has faded.

Analysts, however, argue that the sector's upside potential remains substantial, pointing to the likelihood of an interest rate hike in the second half, low valuations relative to profitability, and aggressive shareholder return programs.

The KRX banking sub-index, compiled by Korea Exchange, gained just 14.46 percent from the start of the year through May 29 — far short of the Kospi's 101.13 percent advance over the same period.

Other sectors surged by comparison: the semiconductor index jumped 163.34 percent and construction climbed 96.22 percent, while fellow financial sectors also posted sharp gains — brokerage stocks rose 67.90 percent and insurance 44.56 percent.

The banking index covers 10 companies, including KB Financial, Shinhan Financial, Hana Financial, Woori Financial, Industrial Bank of Korea and Kakao Bank.

In the week ended May 29, bank stocks fell 5.20 percent, a stark contrast to the Kospi's 8.01 percent gain. The combined market capitalization of banking index constituents, which once exceeded 233 trillion won (about $155 billion), slipped to around 193 trillion won (about $128 billion) as of May 29, breaking below the 200 trillion won (about $133 billion) mark.

The selloff accelerated as a US-Iran truce pushed international oil prices lower, prompting a decline in US Treasury yields and domestic market interest rates — eroding one of the key attractions of bank stocks.

A prolonged rotation into semiconductor and brokerage shares within the Kospi has also drawn domestic institutional investors into the selling. Last week, institutions were net buyers of Kospi stocks to the tune of about 2.8 trillion won, yet they net sold 105 billion won (about $69.9 million) worth of bank shares.

Analysts nonetheless point to the sector's solid fundamentals. Price-to-book ratios remain depressed relative to profitability, and a rate hike in the second half is widely expected to expand net interest income and provide a springboard for a recovery. Longer-term optimism around digital assets is also building, with traditional financial firms racing to acquire stakes in virtual asset exchanges such as Dunamu and Korbit. Banks' shareholder-friendly policies are drawing attention as well.

Choi Jeong-wook, a researcher at Hana Securities, said he understood why market attention had gravitated toward leading sectors such as semiconductors amid a flood of positive catalysts, but called the degree of neglect toward bank stocks excessive given their sound fundamentals. "After this week's local elections, policy issues that have been on the back burner — including legislative discussions on a basic digital assets law — are likely to resurface," he said, adding that bank stocks could be among the first overlooked sectors to attract renewed interest.

Jo A-hae, a researcher at Meritz Securities, said banks' aggressive shareholder return programs remain on track. "With tax-exempt and separately taxed dividend policies continuing, banks are set to announce second-half buyback plans alongside their second-quarter earnings releases," she said. Combined buybacks by KB Financial, Shinhan Financial, Hana Financial, Woori Financial, BNK Financial, iM Financial and JB Financial are estimated at 2.6 trillion won (about $1.73 billion).


jiyun@heraldcorp.com