Bank index up just 14% this year as semiconductors, brokerages surge
PBR undervaluation and rate-hike expectations offer support
Buybacks and dividend expansion seen as catalysts for rerating
Bank stocks have been left out of the Kospi's record-breaking rally this year, as investors pour money into brokerage shares that benefit more directly from a booming market. The safe-haven character of bank stocks has dimmed their appeal. Securities analysts say the sector's undervaluation relative to earnings, the prospect of a second-half interest rate hike and aggressive shareholder return programs all point to significant room for a rebound.
According to Korea Exchange's KRX industry index data, the bank index rose just 14.46% from the start of the year through May 29, far short of the Kospi's 101.13% gain over the same period. Semiconductor stocks surged 163.34% and construction shares climbed 96.22%, while fellow financial-sector indexes also outpaced banks by a wide margin — brokerages gained 67.90% and insurers 44.56%. Last week alone, bank stocks fell 5.20%, a stark contrast to the Kospi's 8.01% advance. The combined market capitalization of listed bank stocks, which once exceeded 233 trillion won (about $155 billion), slipped to around 193 trillion won as of May 29, falling below the 200 trillion won threshold.
The bank index comprises 10 companies, including KB Financial, Shinhan Financial Group, Hana Financial, Woori Financial, Industrial Bank of Korea and Kakao Bank.
A US-Iran truce has pushed international oil prices lower, pulling US Treasury yields down with them and dragging domestic market rates lower as well — dynamics analysts say will accelerate the sector's marginalization.
A prolonged flow of funds into semiconductor and brokerage stocks within the Kospi has drawn even domestic institutional investors into selling bank shares. Last week, institutions were net buyers of Kospi stocks to the tune of about 2.8 trillion won, yet they were net sellers of bank stocks by 105 billion won.
Analysts still point to the sector's solid fundamentals. Bank stocks trade at price-to-book ratios that look cheap relative to their profitability, a second-half rate hike is widely anticipated, and medium- to long-term growth expectations tied to digital assets add further support.
"I understand why market attention has to gravitate toward leading sectors like semiconductors, which are flush with positive catalysts, but bank fundamentals are in decent shape and the degree of neglect seems excessive," said Choe Jeong-uk, a researcher at Hana Securities. "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, and among overlooked sectors, bank stocks could be the first to attract renewed attention."
Jo A-hae, a researcher at Meritz Securities, said banks' active shareholder return programs remain on track. "While tax-exempt and separately taxed dividend policies continue, banks are set to announce second-half buyback plans alongside their second-quarter earnings releases," she said. "Combined buybacks for KB Financial, Shinhan Financial Group, Hana Financial, Woori Financial, BNK Financial, iM Financial and JB Financial are estimated at 2.6 trillion won."
jiyun@heraldcorp.com
