COVID-19 and Lime Scandal Double Whammy... Falling Financial Stocks

Securities Industry Index Falls 12.34% This Year
Financial Stocks Hit Consecutive New Lows
Financial Funds' Monthly Returns Plummet

[Asia Economy Reporters Song Hwajeong and Oh Jooyeon] Financial stocks are shaking under the shock of the novel coronavirus infection (COVID-19). The Lime Asset Management scandal combined with the spread of COVID-19 has created a compounded crisis. As a result, new 52-week lows are emerging one after another among bank and securities stocks.

According to the Korea Exchange on the 27th, the KOSPI Securities Industry Index has fallen 12.34% since the beginning of this year. In particular, securities stocks have recently recorded consecutive new 52-week lows. On this day, Shin Young Securities fell intraday to 50,200 KRW, marking a new 52-week low again in just one day. On the previous day, Daishin Securities and Hanwha Investment & Securities also fell to intraday 52-week lows, and earlier on the 25th, Mirae Asset Daewoo and NH Investment & Securities, as well as on the 24th, Meritz Securities recorded 52-week lows respectively.

Despite securities firms posting record-high earnings in the fourth quarter of last year, their stock prices have not escaped sluggishness. The Lime scandal combined with COVID-19 has acted as a negative factor for securities stocks. Kang Seung-geon, a researcher at Hi Investment & Securities, analyzed, "The regulatory authorities’ strong intention to regulate related to Lime funds, concerns about the contraction of asset management (WM), and the detailed regulations of real estate project financing (PF) regulations expected to be announced in the second quarter are limiting the rebound of the securities industry. Additionally, the increased volatility in the stock market due to COVID-19 inevitably affects the stock prices of the securities sector."

Researcher Kang added, "The securities industry is likely to show a stock price trend that underperforms relative to earnings for the time being. For a meaningful rebound in stock prices, the detailed regulations on Lime and real estate PF regulations need to be quickly finalized to resolve uncertainties."

However, there is a forecast that the securities industry could be the first to rebound once investment sentiment recovers. Kim Ji-young, a researcher at Kyobo Securities, said, "Although short-term stock market sluggishness is unavoidable due to uncertainties caused by the recent COVID-19 situation, the securities industry, which has high correlation with overall index fluctuations, could also be the first to rebound when investment sentiment recovers."

Financial stocks, which have been on a downward trend since the Lime scandal, are also hitting new lows as branch closures due to COVID-19 overlap. The financial industry index, which rose to 711.10 in December last year, plunged sharply to 613.84 at the end of January after the Lime scandal, and further dropped to 554.91 on the 26th, marking the lowest level in a year due to the impact of COVID-19.

By stock, Shinhan Financial Group recorded a 52-week low of 33,350 KRW intraday on the 25th, followed by KB Financial Group hitting a new low of 38,100 KRW intraday the previous day. As of 9:45 a.m. on the same day, they were trading down 1.17% and 0.13% respectively compared to the previous trading day. Their year-to-date returns are -20.77% and -16.22%, respectively.

This performance is also reflected in theme funds. The one-month return of domestic financial funds was the worst compared to other theme funds. According to financial information provider FnGuide, most theme funds are experiencing sluggishness due to index declines. The Samsung Group fund, which showed strong performance at the beginning of the year, recorded a one-month return of -1.51%, and leveraged funds also plunged by -5.49%. However, domestic financial funds plummeted by as much as -9.21%, showing the largest loss among theme funds. The funds holding up relatively well are IT funds (1.90%) and Fourth Industrial Revolution funds (2.05%).

This content was produced with the assistance of AI translation services.