South Korean financial stocks rose across the board after the U.S. Federal Reserve raised its policy rate for the first time in three years, in contrast with the weakness in U.S. financial shares overnight. Analysts said rising global rates weigh on growth stocks while raising expectations for improved profitability at banks and insurers, and that a stronger won and a broader spread of stock market flows are highlighting the relative appeal of Korean financial shares.
As of 10:37 a.m. on the 17th, KB Financial Group (105560.KS) was trading at 180,300 won, up 3,600 won or 2.04% from the previous session. Hana Financial Group (086790.KS) was at 138,700 won, up 2,000 won or 1.46%, and Shinhan Financial Group (055550.KS) was at 113,400 won, up 1,300 won or 1.16%. Woori Financial Group (316140.KS) was trading at 36,450 won, up 150 won or 0.41%.
The gains track a rebound in financial stocks seen in major markets. Financial shares in Korea and other major markets lagged during the first-half equity rally, but the tone has changed in the second half. Rising global rates weigh on stock markets overall while creating a favorable environment for financial firms.
"Financial stocks in Korea and other major markets all underperformed in the first half, but in the second half overseas financial shares have also been beating market returns across the board," Jeon Bae-seung, an analyst at LS Securities, said in a report.
The relative appeal of financial stocks has grown in particular as major economies shift monetary policy toward rate increases. In Japan, where the policy rate has climbed to 1.00%, its highest in 30 years, financial stocks posted the strongest average returns among major markets, while U.S. and European financial shares have also outperformed in the second half, unlike in the first.
In Korea, rising rates are also seen as favorable for bank and insurance stocks. Banks can expect wider interest income when rates rise, while insurers stand to benefit from better investment conditions as market rates climb.
The broadening of stock market flows beyond semiconductors is another positive for financial shares. Financial stocks, especially banks and insurers, moved out of step this year with chip stocks, where growth prospects drew attention. They were left out of the first-half KOSPI rally, but as share prices of Samsung Electronics (005930.KS) and SK hynix (000660.KS) corrected in the second half, flows that had concentrated in a single sector eased, bringing renewed attention to financial shares as value plays.
Foreign investor flows are also shifting. Net selling has continued in some financial stocks with high foreign ownership and large price gains already behind them, but net selling across financial shares has narrowed or turned to net buying in the second half.
"Solid earnings outlooks, rate increases and a firm won will continue to work as positive factors for foreign flows into financial stocks," Jeon said. "With value stocks gaining relative appeal over growth stocks during a phase of global rate increases, financial shares that were left out of the first-half rally are raising their profile in the second half."
The decline in the won-dollar exchange rate is also cited as favorable for flows into financial stocks. A stronger won allows foreign investors to expect currency gains, which can increase the appeal of investing in Korean financial shares.
