The Cyclical Rotation Continues... Financial Stocks Fail to Soar Despite Earnings Expectations

[Asia Economy Reporter Oh Ju-yeon] From the end of October to this month, while the KOSPI surged 600 points from the 2200 level to 2800, contact-related stocks, which had been sluggish due to the novel coronavirus infection (COVID-19), also joined the rising rally one after another. Financial stocks also showed an upward trend in October and November, but their momentum has somewhat weakened this month. The news that financial authorities are considering lowering the dividend payout ratio of financial holding companies to around 20% has made this weakness more pronounced. However, the securities industry is drawing attention by analyzing that, considering next year's earnings expectations and the recent rotation pattern in the stock market, the market will bottom out and demonstrate additional gains.

According to the Korea Exchange on the 22nd, the KOSPI continued its upward trend following November, soaring to an all-time high from 2634.25 on the 1st to 2806.86 on the 24th, but financial stocks including securities, banks, and insurance did not keep pace with the KOSPI's rise. Securities stocks rose in tandem with the KOSPI, reflecting expectations of increased trading volume, but banks and insurance showed signs of slowing momentum.

Hana Financial Group fell about 2% from 36,550 won to 35,800 won, and Woori Financial Group remained flat, moving from 10,050 won to 10,150 won. Shinhan Financial Group and KB Financial Group showed similar trends. During the same period, Shinhan Financial Group dropped more than 3% from 34,600 won to 33,300 won, and KB Financial Group fell from 47,200 won to 45,450 won.

However, this weakness is interpreted as a consolidation at the bottom rather than a downward trend. Rather, it is explained that it is time to pay attention to stocks that can rise again, reflecting next year's earnings expectations and interest rate rebounds.

According to financial information provider FnGuide, among nine financial companies with earnings forecasts for the first quarter of next year, operating profits of five companies are expected to improve compared to the first quarter of this year.

KB Financial's operating profit for the first quarter of next year is projected to increase by 28.8% year-on-year to 1.3381 trillion won, showing the most significant improvement. In particular, KB Financial is evaluated to be successfully implementing policies to strengthen the competitiveness of the asset management (WM) business across the group by utilizing its securities subsidiaries.

Hana Financial Group is also expected to see its operating profit rise 4.9% year-on-year to 922.1 billion won in the first quarter of next year. SK Securities expects Hana Financial Group's net profit growth rate to reach 1.8%. Although the growth rate appears low due to strong performance in 2020, the securities subsidiaries' performance is also favorable, and overall profit stability is high, which is viewed positively.

SK Securities researcher Koo Kyung-hoe said, "Along with this, the dividend yield is relatively high at 6% among large bank stocks," adding, "In the past, there were characteristics of high profit volatility and low net interest margin, but these weaknesses have been diluted, changing the industry's standing."

In addition, the first-quarter earnings of Shinhan Financial Group and DBG Financial Group are also expected to increase by 7.7% and 6.9% year-on-year, respectively, raising expectations for overall earnings improvement in financial stocks.

Recently, the news that financial authorities have prepared a recommendation to lower the dividend payout ratio of financial holding companies from the previous 26-27% level to around 20% caused stock prices to weaken. However, this is a measure to secure loss absorption capacity amid increased uncertainty due to the spread of COVID-19, and from a long-term perspective, considering earnings improvements, it is analyzed that it is time to increase exposure.

Kiwoom Securities researcher Seo Young-soo explained, "Even if the dividend payout ratio is lowered according to the financial authorities' recommendation, the decline in dividend yield will not be significant, around 1%, and this negative factor has already been reflected in stock prices, which have fallen more than 9% compared to November 25, relative to the market's rise."

He added, "The dividend yield is still high at 4-5% based on current stock prices, and overseas, financial regulations are temporarily being lifted," emphasizing that considering this, now is the time to increase interest in financial stocks.

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