Foreigners Returning to Bank Stocks? ... KB Financial Tops Net Purchases in August

[Asia Economy Reporter Koh Hyung-kwang] Foreign investors have started to show renewed interest in bank stocks in the domestic stock market, focusing on buying KB Financial Group this month. Contrary to concerns stemming from the COVID-19 pandemic, the strong second-quarter earnings announcements and the upcoming year-end dividends are interpreted as reasons for gradually increasing their weighting in bank stocks.

According to the Korea Exchange on the 18th, the stock most purchased by foreigners in the domestic stock market this month is KB Financial Group. Foreign investors have net bought KB Financial Group shares worth a total of 129.2 billion KRW from the beginning of this month through the 14th. This is the largest net purchase amount on their shopping list this month, surpassing LG Electronics (121.5 billion KRW) and Celltrion (113.1 billion KRW).

This is the first time this year that a bank stock has ranked first among the most purchased stocks by foreigners on a monthly basis. Until now, semiconductor, bio, and untact-related stocks such as Samsung Electronics, Kakao, and Samsung Biologics had occupied the top net purchase rankings, but this month bank stocks have taken their place. Shinhan Financial Group also ranked 8th (40.7 billion KRW) in foreign net purchases this month.

From February to June, when the COVID-19 crisis intensified, foreigners consistently sold bank stocks for five consecutive months. KB Financial Group and Shinhan Financial Group were always among the top 10 net sold stocks, making bank stocks unpopular among foreign investors. However, starting last month, foreigners began showing buying momentum again for bank stocks. Last month, foreigners bought Hana Financial Group shares worth 83.6 billion KRW, ranking 8th in net purchases, and this month, they net bought KB Financial Group for eight consecutive trading days from the 4th to the 13th. Supported by foreign buying, KB Financial Group’s stock price has risen more than 13% this month alone.

The shift to buying by foreigners is interpreted as a result of bank stocks, which were expected to show deteriorating earnings, recording an 'earnings surprise,' highlighting their valuation attractiveness (stock price level relative to earnings). KB Financial Group’s second-quarter net profit was 981.8 billion KRW, significantly exceeding the securities industry consensus (average forecast) of 850.1 billion KRW. BNK Financial Group (25.5%), Hana Financial Group (18.4%), and Shinhan Financial Group (5.5%) also posted second-quarter net profits above consensus. Choi Jung-wook, a researcher at Hana Financial Investment, said, "Despite the COVID-19 situation, banks showed good performance in their core business areas," adding, "The bottoming out of banks’ net interest margin (NIM) is occurring faster than expected, and the risk of a significant increase in non-performing loans is unlikely to materialize in the near term, indicating that banks’ fundamental strength remains solid."

As the year-end approaches, there is also analysis that major investors, including foreigners, are increasing investments in bank stocks with high dividend payout ratios. Park Hye-jin, a researcher at Daishin Securities, said, "Although bank stocks do not have much upside potential at the current level, they are securing downside rigidity in stock prices," adding, "The average dividend yield of covered stocks this year is 6.9%, so the attractiveness of dividends clearly exists."

However, there is also a possibility that the foreign buying momentum may be short-lived. Since bank stocks are still underperforming overseas, it is considered difficult for foreigners to continuously buy domestic bank stocks. Jo Bo-ram, a researcher at NH Investment & Securities, said, "Bank stocks are underperforming the market overseas as well, so it will not be easy for foreigners to buy only domestic bank stocks," adding, "Bank stocks may show a short-term cyclical rise."

Expectations that the net interest margin (NIM), a profitability indicator for banks, will hit a low point in the third quarter due to interest rate cuts and an increase in low-yield deposits are also factors causing hesitation in investing in bank stocks. Koo Kyung-hoe, a researcher at SK Securities, analyzed, "Considering the potential growth rate deterioration, low inflation, and abundant liquidity in major global countries, it is difficult for interest rates to rebound," adding, "The NIM of domestic banks is likely to decline further in the second half of the year."

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