Sliding Financial Stocks, How Long Will It Last...

Despite various positives such as surprise earnings and year-end dividend season,
stock prices remain weak amid financial authorities' pressure to limit dividends

[Asia Economy Reporter Park Jihwan] Despite the recent record-high levels of the KOSPI, major domestic financial stocks have been showing a weak trend amid pressure from financial authorities to restrict dividends. Attention is focused on how long the stock price weakness will continue despite various positive factors such as this year's earnings surprises and the year-end dividend season.

According to the Korea Exchange on the 14th, the stock prices of the four major financial groups have fallen by an average of 6.7% since the beginning of the year as of the closing price on the 11th. During this period, KB Financial Group and Hana Financial Group rose by 1.18% and 0.56%, respectively, but Shinhan Financial Group and Woori Financial Group fell by 18.90% and 9.65%. While the KOSPI surged to an all-time high of 2700, rising 27.35% during the same period, domestic financial stocks have been thoroughly sidelined.

The weakness in financial stocks is due to the financial authorities issuing a 'dividend restraint order' amid the prolonged COVID-19 pandemic. The order requires securing sufficient reserves by reducing dividends for the time being to respond to external crises such as unexpected exchange rate fluctuations and economic recessions. Financial stocks are considered representative dividend stocks in the stock market. Although the industry itself is not expected to have rapid growth, the biggest advantage is the ability to receive stable dividends. However, as the atmosphere of dividend cuts is sensed, domestic institutions turned to net selling again last week, with net sales of 80.4 billion KRW in the four major financial stocks.

Within the financial sector, there are concerns that if dividends as a form of shareholder returns are reduced, the biggest incentive to retain shareholders will disappear, potentially leading to continued stock price underperformance. With financial stocks already significantly down, defending shareholder value has emerged as a non-negotiable task. Individual investors have also expressed negative opinions, posting petitions titled "Oppose the reduction of year-end dividends for financial stocks" on the Blue House's public petition board.

The securities industry expects that since the dividend regulation controversy has already been largely reflected in stock prices, it is unlikely to cause further significant declines. Above all, considering this year's strong performance of banks, it is difficult for the undervaluation to persist. The net profit of the four major financial groups in the third quarter of this year was 3.5512 trillion KRW, marking a 14.4% year-on-year increase and continuing the earnings surprise streak.

Choi Jungwook, a researcher at Hana Financial Investment, evaluated, "Although investment sentiment toward dividend stocks has somewhat weakened due to the financial authorities' dividend regulation issue, financial stocks have consistently risen every year before the ex-dividend date over the past several years. From a mid- to long-term perspective, they remain attractive in terms of price, and they combine the growth drivers of rising interest rates and earnings growth, which is positive."

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