Buy Bank Stocks Before the Ex-Dividend Date

Expectations for Earnings Growth Despite Interest Rates
Analysis of the Optimal Investment Timing to Avoid Ex-Dividend Date

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Although bank stocks have fallen sharply due to the impact of the COVID-19 variant virus Omicron, there is a prospect that this could act as a factor to avoid the negative effect of dividend cuts. Considering next year's interest rate hikes, now may be the right time to invest.

According to the Korea Exchange on the 23rd, the KRX Bank Index fell by 0.79% from the 1st of last month to the day before. During the same period, the KRX100 Index rose 2%, which is less than half the return.

Bank stocks usually experience a seasonal boost at the end of the year. This is due to dividends that significantly exceed the market dividend yield. Large investors flock to secure year-end dividends. In 2019, the index rose 10.74% from November to December 22, and last year it increased by 12.73%. Especially this year, the interest rate hike cycle overlapped with the shift to tightening policies in major countries.

The spread of the Omicron variant virus was a hindrance. As global interest rates fell, the attractiveness of bank stocks was sharply reduced. At the beginning of last month, the 3-year and 10-year government bond yields recorded 2.12% and 2.51%, respectively, but on the 21st, they dropped to 1.7% and 2.1%.

However, contrarian analysis suggests that the burden of dividend cuts has lessened. Dividend stocks, which usually show a sharp rise after the ex-dividend date, tend to undergo corrections, but this year, due to the low stock prices, the rate of price decline is not expected to exceed the dividend yield. Jungwook Choi, a researcher at Hana Financial Investment, analyzed, "Since bank stocks have not shown a significant rebound even with year-end dividends, the possibility of a sharp drop in stock prices like in past cases is low."

Profit growth from next year's base rate hikes could be the key to a stock price turnaround. If the Bank of Korea raises the base rate further next year, banks' net interest margin (NIM) is expected to increase by about 5?6 basis points (1bp=0.01%), leading to an overall profit growth of around 6%. Jaewoo Kim, a researcher at Samsung Securities, said, "Despite tighter household debt regulations, corporate loans are increasing, and growth of around 7% is expected next year," adding, "Some banks have seen NIM improvements since the third quarter."

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