Bank Stocks Show Increased Interest Rate Sensitivity and Stronger Global Synchronization

[Asia Economy Reporter Song Hwajeong] The interest rate sensitivity of bank stocks is increasing, and global synchronization is also strengthening. Accordingly, bank stocks are expected to perform strongly following future US interest rate hikes.

According to SK Securities on the 18th, the interest rate sensitivity of domestic bank stocks has become very high. The relative performance of the KRX Bank Index compared to the KOSPI has shown a correlation of 0.77 with interest rates since March (based on daily fluctuations). Koo Kyunghoe, a researcher at SK Securities, explained, "Simply put, bank stock performance moved in the same direction as interest rates on four out of five days," adding, "In the US as well, bank stock performance is influenced by interest rates, with a daily correlation of 0.86 between the two variables, which is even higher than in Korea."

Not only interest rate sensitivity but also global synchronization is strengthening. Since the COVID-19 pandemic, global stock markets have become more synchronized, so the movement of domestic bank stocks is no longer driven solely by Korea-specific issues. Researcher Koo said, "The banking sector indices of Korea and the US are showing very similar trends," and analyzed, "The overarching themes for global bank stocks are interest rates, inflation, and tapering (asset purchase reduction), all of which are interconnected. Ultimately, the fact that interest rates are a key factor determining bank stocks remains unchanged."

In the long term, interest rate hikes by the US Federal Reserve (Fed) are expected to lead to rising market interest rates and stronger bank stocks. Researcher Koo stated, "The trend of interest rates influencing bank stocks will continue further," and added, "Our base scenario assumes a 1.75% increase (six times in total) in the US benchmark interest rate over two years since June 2022. We expect interest rates to rise in the long term and maintain an 'overweight' opinion on the banking sector considering this." He further noted, "In the short term, bank stocks are struggling due to adjustments in market interest rates, but from a long-term perspective, the increase in the benchmark interest rate will lead to higher market interest rates, which will result in the relative strength of bank stocks."

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