Bank stocks rallied across the board as the KOSPI tumbled sharply just short of the 9,000 mark, revealing their true colors as defensive stocks. As profit-taking emerged in technology stocks, investor sentiment is seen shifting toward financial stocks, which offer earnings predictability and dividend appeal.
According to the Korea Exchange Thursday, eight of the 11 bank stocks closed higher that day. Shinhan Financial Group (055550.KS) jumped 7.39% to 107,500 won, while KB Financial Group (105560.KS) rose 4.51% to 171,600 won, leading the gains. Month-to-date gains were in double digits for Shinhan Financial Group (14.85%) and KB Financial Group (13.94%), while Hana Financial Group (7.38%) and Woori Financial Group (5.05%) also stood out. The KRX Bank Index rose 8.91% in June, ranking fourth among sector indices by price change. This contrasts with the KOSPI's 3.72% decline over the same period.
The market cites a preference for defensive stocks amid volatile conditions as the backdrop for the bank stocks' strength. Bank stocks gain expectations of improved net interest margins (NIM) during periods of rising interest rates, while their earnings and dividends support share price floors when market volatility increases. With the Bank of Korea's base rate hike in July this year becoming likely, government bond yields are on an upward trend. As the won-dollar exchange rate surged that day, the three-year government bond yield closed at 3.882% in the Seoul bond market, up 2.4 basis points (bp=0.01 percentage point) from the previous trading session. This marks the highest level in about two years and seven months. The 10-year yield also rose 2.5 bp to an annual 4.254%, the highest since November 1, 2023.
In addition, as profit-taking poured into semiconductor stocks, funds are seen shifting to financial stocks, which have low correlation with information technology (IT) market conditions. Bank stocks, which until last month were criticized as a neglected sector amid a combination of falling market interest rates, policy burdens related to inclusive finance, and supply-demand pressures, are now in the spotlight. Lee Young-gon, head of the research center at Toss Securities, explained, "As semiconductors undergo a correction, rotational buying is moving toward other stocks."
Prospects that the burden of fines for the mis-selling of equity-linked securities (ELS) tied to the Hong Kong H index could be reduced have also improved investor sentiment. Bank stocks had faced significant concerns over ELS compensation and fines, but as the Financial Supervisory Service (FSS) lowered the total fines from 1.4 trillion won to around 600 billion won on Wednesday, expectations have risen for this year's earnings estimates and capacity for shareholder returns.
According to Kiwoom Securities, this year's combined consolidated net profit estimate for KB, Shinhan, Hana, and Woori Financial Groups is 19.913 trillion won, expected to rise 10.9% from last year. KB Financial Group has the largest earnings at 6.52 trillion won, while Shinhan Financial Group and Hana Financial Group (086790.KS) are also expected to post double-digit growth rates. With return on equity (ROE) at 7.9% to 10.6% and dividend yields at 3.2% to 4.8%, there are also strong expectations for share buybacks and cancellations as well as dividend expansion.
Analysts forecast that funds could disperse to financial stocks during periods when dividend yields and valuation appeal come to the fore. Baek Young-chan, head of the research center at Sangsangin Securities, said, "In a phase where upward pressure on interest rates continues, expectations of improved NIM can take hold, so it is an environment that is not bad for bank stocks."
