Bank stocks have rallied even as the KOSPI fell about 14% in July. The gains are attributed to expectations for stable profits, dividends, and share buybacks and cancellations, as volatility in the semiconductor sector increased. High-dividend exchange-traded funds (ETFs) holding financial stocks also maintained their positions among the top performers.
According to the Korea Exchange on the 9th, Shinhan Financial Group (055550.KS) rose 9.60% this month, from 95,800 won to 105,000 won. KB Financial Group (105560.KS) (7.80%), Hana Financial Group (086790.KS) (6.98%), and Woori Financial Group (316140.KS) (3.62%) also all posted gains. This contrasts with the KOSPI, which fell 13.97% amid a plunge triggered by Samsung Electronics and SK hynix on concerns that memory chip prices have peaked.
Bank stocks are classified as defensive plays because their dividends and cash flows are relatively stable and they benefit significantly from interest rate changes. According to Shinhan Securities, the net profit attributable to controlling shareholders for eight banks (KB, Hana, Woori, IBK, BNK, iM, JB, and Kakao) is expected to reach 5.6 trillion won in the second quarter, meeting market expectations. "We expect an upside breakthrough based on the elevated return on equity (ROE)," said Eun Kyung-wan, an analyst at Shinhan Securities. "Fatigue from the high price volatility in the semiconductor sector and the possibility of a base rate hike this month are supporting the upward trend in bank stocks."
Expectations for shareholder returns are another factor propping up bank stocks. This is because the financial sector is likely to announce interim dividends and share buyback and cancellation plans along with second-quarter earnings. "Expectations for banks' active shareholder returns remain valid, based on improvements in the common equity tier 1 (CET-1) ratio," said Cho A-hae, an analyst at Meritz Securities. Some observers also note that the price-to-book ratio (PBR) of bank stocks has fallen to 0.70 times, easing valuation pressure compared with recent highs.
In the ETF market, products with high weightings of financial stocks also cushioned the downturn. According to Koscom's ETF Check, the top-performing domestic equity ETF over the past week (excluding leveraged and inverse products) was the "RISE 200 High Dividend Covered Call ATM," which returned 7.34%. While U.S. and China-related products occupied most of the top 10 spots, a domestic dividend product took first place. The RISE 200 High Dividend Covered Call ATM buys high-dividend index stocks in the KOSPI 200 and sells KOSPI 200 call options to pursue both dividend income and option premiums. Won-denominated deposits account for the largest share at 14.68%, followed by holdings such as Misto Holdings (081660.KS) (2.84%), DB Insurance (005830.KS) (2.71%), Samsung Card (029780.KS) (2.70%), and IBK (2.60%).
