[Practical Finance] Banks and Insurance Defensive Stocks Rise on Expectations of Benefits from Interest Rate Hikes

Banking Sector Index Rises 8.5% in One Month
KB Financial Regains 50,000 Won Level for First Time in 3 Years...Foreign Investors Lead Uptrend This Month
Still Undervalued...Bullish Trend Expected to Continue

[Asia Economy Reporter Byungseon Gong] Bank and insurance stocks are gaining prominence due to rising interest rates. As stock market volatility increases, banks and insurance companies, which are representative defensive stocks, are attracting attention.

According to the Korea Exchange on the 24th, the KOSPI banking sector index recorded 195.15 on the 22nd. This is about an 8.5% increase compared to a month ago. The excess rise of bank stocks in the KOSPI over the past month reached approximately 14.1 percentage points. The KOSPI insurance sector index also rose about 2.5% compared to a month ago.

The upward trend is clear even when looking at individual stocks. The representative bank stock KB Financial saw its stock price rise from the 40,000 won range last month to 51,400 won on the 22nd. This is the first time since 2018 that it has surpassed 50,000 won. Shinhan Financial Group's stock price also rose from the low 30,000 won range to 35,600 won. Insurance stocks showed a similar trend. DB Insurance's stock price remained in the 30,000 won range until last month but closed at 45,300 won on the 22nd. Meritz Fire & Marine Insurance also saw its stock price rise from the 14,000 won range to 18,050 won on the same day.

Notably, foreign investors have been buying. Since March, foreigners have been purchasing bank and insurance stocks, driving the price increases. On the 22nd, KB Financial's foreign ownership was 66.68%, but it rose by 1.58 percentage points over a month to 68.24%. Shinhan Financial Group also increased by 1.20 percentage points over the month to 59.70% on the 22nd. Particularly, DB Insurance saw foreigners buying for 12 consecutive trading days starting from the 5th, pushing foreign ownership up to 41.30%. This is an increase of 1.37 percentage points compared to a month ago.

The reason bank and insurance stocks have recently been strong is due to interest rates. Although the U.S. Federal Open Market Committee (FOMC) announced on the 17th (local time) that it would maintain zero interest rates, the market still worries about inflation. The U.S. 10-year Treasury yield, which was in the 0% range as of January, surged to 1.68% on the 22nd. Generally, stocks, which are risky assets, tend to weaken when interest rates rise due to inflation and tightening concerns. However, for banks and insurance companies, rising interest rates mean improved earnings. When U.S. Treasury yields rise, banks' net interest margins improve, increasing profits. For insurance companies, the rise in yields on held government bonds improves interest income, and uncertainties related to IFRS17, which will be implemented in 2023, are alleviated, reducing the burden of additional capital increases.

Experts analyze that the strength of bank and insurance stocks will continue for the time being. They are already undervalued, and the adjustment period is lengthening. Jin-yong Jeong, a researcher at Hana Financial Investment, said, “The U.S. 10-year Treasury yield is above 1.7%, so it is difficult for it to rise further in the short term, but banks’ first-quarter results are good,” and predicted, “Bank stocks will start rising again from early April.” Jun-seop Jeong, a researcher at NH Investment & Securities, said, “Currently, insurance stocks are undervalued and play a defensive role in the economy, so the longer the adjustment period, the more they will be highlighted,” and forecasted, “In the case of non-life insurance, it succeeded in turning a profit last year and will continue that momentum this year.”

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