Banks with Excessive Decline, Is a Rebound Starting?

[Asia Economy Reporter Park Ji-hwan] Attention is focused on when the investment sentiment for bank stocks, which plummeted due to the shock of the novel coronavirus infection (COVID-19), will improve.

According to the Korea Exchange on the 6th, the KRX Bank Index closed at 501.87 on the 4th, down 21.43 points (4.10%) from the previous session. The KRX Bank Index has fallen 29.15% since the beginning of the year.

The weakness of bank stocks so far has been inevitable due to the downward trend in interest rates, the most important indicator of profitability. When interest rates decline, the bank's net interest margin shrinks, negatively affecting earnings. In addition, the derivative-linked fund (DLF) incident and Lime Asset Management private equity fund redemption suspension incident that emerged last year have been major issues until recently, excessively increasing the decline in bank stocks. Concerns about the collapse of the real economy due to COVID-19 also played a role.

However, recently, the investment sentiment for bank stocks has been gradually recovering. As concerns over earnings ease, stock prices are also preparing for a full-fledged rebound. The KRX Bank Index rose 9.64% over the past month from the 1st of last month to the 4th of this month. Last week, foreign investors, who turned buyers for the first time in 12 weeks, purchased a large volume of financial stocks, further raising expectations for a turnaround.

Kim Jae-woo, a researcher at Samsung Securities, explained, "After banks announced surprising first-quarter earnings, concerns over second-quarter earnings eased, and considering the rapid stock price recovery in other industries due to the decrease in COVID-19 confirmed cases, the attractiveness of bank stocks has increased."

While the dividend yield of bank stocks continues to rise, stock prices remain undervalued, leading to evaluations that it is an opportune time to invest. In 2013, the dividend yield of financial holding companies was at the 1% level, but last year, all exceeded 4%. Given the recent large decline in stock prices, the dividend yield is likely to increase further.

Kim In, a researcher at BNK Investment & Securities, said, "Looking at bank stocks this year, concerns over economic slowdown due to the outbreak of COVID-19 caused a 27.7% decline, which is 16.3% underperformance compared to the KOSPI. Considering the market interest rate below 2%, the dividend yield of bank stocks exceeding 5% makes the current stock price difficult to understand," he explained.

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