Investment Strategies in a Rising Interest Rate Environment... Bank Stocks Are No Longer Beneficiaries, 'Focus on This Sector'

Insurance Stocks Show Strong Profitability and High Dividends
"Non-Life Insurance Benefits More Than Life Insurance"

[Asia Economy Reporter Kwon Jae-hee] As the Bank of Korea has once again implemented a big step (raising the base interest rate by 0.5 percentage points at once), a cold wave is expected to continue in the Korean stock market, increasing interest in investment destinations during the interest rate hike period. Financial stocks are generally considered investment destinations during interest rate hikes, but among them, careful selection is necessary, according to analysis.

According to the financial investment industry on the 12th, during the two interest rate hike periods since 2000?from 2004 to 2007 and from 2015 to 2019?financial stocks showed strong performance. Banks can increase net interest margin profits during interest rate hikes, and market funds tend to flow in.

However, recently, bank stocks have not been playing the role of a safe haven during interest rate hikes. Despite the base rate increase, the weakening trend of net interest margin improvement, the possibility of rising credit costs, and unfavorable non-interest income effects make it difficult for the rapid interest rate hike situation to positively affect stock prices. The third-quarter earnings of commercial banks this year are also expected to fall slightly short of market expectations. According to Hana Securities, based on securities market forecasts, eight bank stocks including the four major financial holding companies (KB, Shinhan, Hana, Woori) are expected to post a third-quarter net profit of 6 trillion won. This is about an 11% increase compared to the same period last year but somewhat below market expectations.

Researcher Eun Kyung-wan of Shinhan Investment Corp. pointed out, "Bank stocks fell 8.8% in the third quarter, declining more sharply than the KOSPI average."

On the other hand, among financial stocks, insurance stocks are considered investment destinations to watch during interest rate hikes. Due to the nature of insurance stocks, a large portion of assets is invested in safe assets, which can lead to improved earnings during interest rate hikes. In particular, among insurance stocks, non-life insurance companies are analyzed to benefit more than life insurance companies. In fact, in the first half of this year, the net profit of life insurance companies was 2.1807 trillion won, down 30.7% year-on-year, while non-life insurance companies posted 3.4337 trillion won, up 35.7%.

Additionally, the stock prices of insurance companies remain at relatively low levels, and their dividend yields are high, which is also positive. The dividend yields (dividends divided by stock price) are 4.61% for Samsung Life Insurance, 6.27% for Samsung Fire & Marine Insurance, and 4.97% for Hyundai Marine & Fire Insurance.

According to financial information provider FnGuide, the insurance index's return over the past month fell by only 4.58%, which is a smaller decline compared to the KOSPI's 8.06% drop during the same period. Since the beginning of this year, the insurance index has fallen only 4.73%, while the KOSPI index dropped 26.38% during the same period.

Researcher Kim Do-ha of Hanwha Investment & Securities analyzed, "Non-life insurance companies have good profitability and high dividend appeal, making them undervalued top performers," adding, "The industry conditions are also improving, making them attractive."

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