Financial Stocks: Prices Have Risen but Concerns Remain

"Trend of Interest Rate Decline to Pause, Marking Turning Point for Stock Prices and Valuations"

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[Asia Economy Reporter Kum Boryeong] Despite the recent rise in stock prices, financial stocks still cannot shake off concerns about second-quarter earnings.

According to the Korea Exchange on the 27th, the financial industry index recorded 324.15 the previous day. Since hitting 220.20 on March 19, when the COVID-19 outbreak was at its peak, it has drawn an upward curve, rising about 47.21% in about two months. Looking at stock prices during the same period, KB Financial rose 25.14% from 26,050 KRW to 32,600 KRW, and Hana Financial Group increased 44.2% from 18,550 KRW to 26,750 KRW. Woori Financial Group, Korea Financial Group, and Shinhan Financial Group also showed increases of 24.85%, 29.17%, and 32.29%, respectively.

However, concerns about financial stocks remain as the economic downturn caused by the COVID-19 crisis is expected to be fully reflected from the second quarter. NH Investment & Securities researcher Jo Boram explained, "There is a lack of positive catalysts that could reverse the current growth and profitability trends of banks," adding, "The possibility of further cuts in the Bank of Korea's base interest rate cannot be ruled out, which puts pressure on the fundamentals and sentiment of the banking sector."

In particular, Woori Financial Group is analyzed to have potential risk factors. These include the worsening business environment and asset quality accelerated by the economic downturn, a non-bank expansion strategy that fails to meet expectations, and delays in selling the remaining shares held by the Korea Deposit Insurance Corporation (KDIC).

The overall earnings consensus for financial stocks has also declined. Hana Financial Investment forecasted that bank net profits this year would be about 12.2 trillion KRW as the earnings consensus for banks rapidly lowered after the COVID-19 outbreak. This represents about a 12% decrease compared to last year's consensus.

Small and mid-sized financial stocks are also facing difficulties in fundamental recovery. BNK Financial Group and DGB Financial Group are estimated to suffer margin erosion due to falling interest rates and increased bad debt costs due to the impact of COVID-19.

Researcher Jo said, "Until macro variables stabilize, stock price volatility and discount rates are expected to be high, so a conservative investment strategy and a long-term perspective are necessary," adding, "The point when the trend of interest rate declines comes to an end will be a meaningful turning point for stock prices and valuations."

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