Attractive Undervaluation of Regional Financial Stocks Amid Rising Interest Rates

[Asia Economy Reporter Jiwhan Park] Regional financial stocks are emerging as beneficiaries of rising interest rates. While the entire banking sector is generally expected to benefit from the interest rate hikes with upwardly revised forecasts, relatively undervalued regional bank stocks are attracting attention.

According to the Korea Exchange on the 7th, financial stocks, which fell 4.15% even during last year's broad KOSPI rally, have shown a clear rebound this year.

As of the closing price on the 5th, the KRX Bank Index, composed of eight major domestic financial holding companies and banks, closed at 652.29, up 1.18 points (0.18%) from the previous trading day. The index has risen 6.22% since the beginning of this year.

The recent rise in bank stocks is attributed to the sharp surge in U.S. Treasury yields. The 10-year Treasury yield, which had been around 1.4% earlier this week, soared to 1.569% on the 5th.

Amid this rising interest rate environment, there is growing opinion that special attention should be paid to regional banks. Considering capital ratios and earnings, the momentum for regional banks to rise in the first quarter of this year is seen as strong.

The price-to-earnings ratio (PER) of DGB Financial Group and BNK Financial Group stands at 3.6 times, while KB Financial Group and Shinhan Financial Group have PERs around 5 times. Even in the overall de-rating phase (a phenomenon where price-to-earnings ratios decline) of bank stocks, the price neglect of regional bank stocks is considered somewhat excessive.

Jungwook Choi, a researcher at Hana Financial Investment, predicted, "Considering that asset soundness is better than expected and capital ratios are also improving, there is a high probability of a rise in the PER of regional banks." He added, "While global bank stocks in the U.S. and Europe have seen significant price increases recently due to global interest rate momentum, the rebound in domestic bank stocks has been relatively modest."

Furthermore, expectations for economic recovery in key regional areas such as Busan and Daegu increase the attractiveness of regional financial stocks. The BNK Economic Research Institute forecasted that major industries in the Southeast region, including shipbuilding, automobiles, and steel, will improve this year, with the Southeast regional economic growth rate reaching 2.9%. As the core industries in the operating base regions?automobiles, steel, and shipbuilding?recover, corporate loan demand is expected to improve significantly.

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