Neglected Bank Stocks... Will They Now Rise on Interest Rate Hikes and Undervaluation?

On the 11th, when the KOSPI index surpassed the 3,200 mark intraday for the first time in history, dealers were working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Honam Moon munonam@

[Asia Economy Reporter Park Jihwan] Following last year, attention is focused on whether bank stocks, which have significantly underperformed the market returns at the beginning of the year, will fully join the KOSPI's rising rally. As the perception spreads that a mid- to long-term interest rate uptrend has begun and stock prices are extremely undervalued, expectations are growing that they will join the full-fledged market upswing.

According to the Korea Exchange on the 11th, last week bank stocks including KB, Shinhan, Woori, Hana, Industrial Bank, BNK, DGB, and JB closed up an average of 5.3%. Due to their dividend stock characteristics, they showed an overall weakness with a decline adjustment after the year-end ex-dividend date early in the week, but rebounded due to the global interest rate surge following the realization of the U.S. Blue Wave. Although stock prices closed higher, considering that the KOSPI's rise last week was 9.7%, bank stocks relatively underperformed. Last year, while the KOSPI rose 30.75%, bank stocks actually fell 4.15%.

However, given the clear global interest rate rise trend this year and the price-to-book ratio (PBR) of 0.33, it is expected that bank stocks will quickly narrow the gap with the market. A PBR below 1 indicates that the stock price is undervalued and does not reflect the company's intrinsic value.

With the recent achievement of the U.S. Blue Wave, interest rate hikes are becoming a reality this year. According to U.S. economic media MarketWatch, the 10-year U.S. Treasury yield closed at 1.084% on the 7th (local time) in the New York bond market. This surpassed the 1% level for the first time in 10 months since March last year. Some analyses suggest it could rise to 1.5% soon.

Since the interest rates have been maintained at the lowest levels since 2019, the momentum for rising rates is just beginning, leading to expectations of a full-scale profit improvement in the banking sector. If domestic government bond yields and market interest rates, which have a high correlation with U.S. Treasury yields, rise together, it is expected to lead to improved profitability. According to FnGuide, the operating profit consensus for the banking sector this year (estimates from three or more securities firms) is 2.0117 trillion KRW, expected to increase by 5.18% compared to last year.

Choi Jungwook, a researcher at Hana Financial Investment, said, "Bank stocks in the U.S., Europe, and Japan have significantly outperformed their respective market indices," adding, "Although domestic bank stocks have somewhat weaker gains compared to global bank stocks, it is only a matter of time before the global bank stocks' excess gains are reflected in domestic bank stock prices as well."

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