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Will Korean bank stocks bounce back on blue wave?

U.S President-elect Joe Biden delivers an address in Atlanta for Democratic candidates on Jan. 4, the eve of the Georgia Senate election. AP-Yonhap
U.S President-elect Joe Biden delivers an address in Atlanta for Democratic candidates on Jan. 4, the eve of the Georgia Senate election. AP-Yonhap

By Lee Min-hyung

Investors are paying growing attention to whether Korean bank shares will be able to benefit from a so-called "blue wave," a commonly used phrase referring to U.S. President-elect Joe Biden's Democratic Party taking control of the House and Senate there.

These results are widely seen as giving more leeway for Biden's push for pump-priming measures for the U.S. economy. The expectation raised the yield on the 10-year U.S. Treasury note above 1 percent last week for the first time since the effects of the COVID-19 pandemic started engulfing the global economy in March last year.

Given that Korea's market interest generally moves in tandem with that of the U.S., chances are growing this will come as a boon for Korean bank shares to get off to a fresh start this year and help them regain investor confidence after a sluggish performance throughout 2020, according to market experts.

Starting last week, Korean bank shares began showing gradual signs of a rebound on such hopes. This is noteworthy in that their valuation generally falls around the turn of the year as investors have a tendency to sell them soon after year-end dividends.

But this was not the case this time. The stock price of KB Financial Group hit a low of 44,000 won ($40), Jan. 6, but has since recovered to around 46,000 won as of Thursday. Shares of other major financial holding firms ― such as Shinhan, Hana and Woori ― also showed similar pattern.

Even though it is only two weeks into 2021, market experts remain optimistic over their performance due to the "blue wave"-sparked hopes for a rise in the interest rate.

"We maintain our outlook on a bullish run of bank shares in 2021, as the blue wave-driven interest rate momentum signals the re-rating of shares," Hana Financial Investment analyst Choi Chung-uk said.

Most bank shares here failed to achieve any meaningful movement in 2020, as the financial authorities toughened their restrictions on banks' major businesses amid the year-long shock of the coronavirus pandemic here.

With the authorities blocking them from engaging in aggressively making loans, and instead pushing them to store up cash for bad debts, investors paid little attention to their growth last year. On top of that, the government also pressed them to reduce dividends, in what they said was a move to brace for the worst-case scenario of a possible virus-induced market panic.

But such fear factors are expected to subside to some extent this year, as chances remain slim for major lenders to increase their bad debt reserves, according to Choi. The blue wave momentum also raised hopes for them to report a decent rise in their net interest margin in the first quarter, he said.

SK Securities economist Koo Kyung-hoi also recommended investors to purchase more bank shares amid growing signs of growth in margins thanks to the expectations of an interest rate rise.

Bank shares have risen 3.7 percent over the six trading days from Jan. 4. Although this still fell behind the 9.6 percent growth of the benchmark KOSPI. The analyst attributed the weak growth to lingering uncertainties over bank dividends.

"After they release their 2020 earnings report late this month, however, bank shares will start jumping on track for a rebound," he said.

Investors' disappointment in banks' reduced dividends has already been reflected in their stock prices, according to him. But from the beginning of late January, the positive outlook on the interest rate will start offsetting the fear and help drive up their stock prices, he said.

Despite the overall optimism over their medium-term growth here, major bank shares nudged down on Thursday. Shares of KB Financial Group closed at 46,550 won, down by 1.59 percent from the previous trading day. Shinhan shares also fell by 0.44 percent and closed at 34,050 won, with Hana closing at a 2.36 percent drop at 39.250 won. Woori shares, however, inched up by 0.5 percent and closed at 10,100 won.


U.S President-elect Joe Biden delivers an address in Atlanta for Democratic candidates on Jan. 4, the eve of the Georgia Senate election. AP-Yonhap
U.S President-elect Joe Biden delivers an address in Atlanta for Democratic candidates on Jan. 4, the eve of the Georgia Senate election. AP-Yonhap

By Lee Min-hyung

Investors are paying growing attention to whether Korean bank shares will be able to benefit from a so-called "blue wave," a commonly used phrase referring to U.S. President-elect Joe Biden's Democratic Party taking control of the House and Senate there.

These results are widely seen as giving more leeway for Biden's push for pump-priming measures for the U.S. economy. The expectation raised the yield on the 10-year U.S. Treasury note above 1 percent last week for the first time since the effects of the COVID-19 pandemic started engulfing the global economy in March last year.

Given that Korea's market interest generally moves in tandem with that of the U.S., chances are growing this will come as a boon for Korean bank shares to get off to a fresh start this year and help them regain investor confidence after a sluggish performance throughout 2020, according to market experts.

Starting last week, Korean bank shares began showing gradual signs of a rebound on such hopes. This is noteworthy in that their valuation generally falls around the turn of the year as investors have a tendency to sell them soon after year-end dividends.

But this was not the case this time. The stock price of KB Financial Group hit a low of 44,000 won ($40), Jan. 6, but has since recovered to around 46,000 won as of Thursday. Shares of other major financial holding firms ― such as Shinhan, Hana and Woori ― also showed similar pattern.

Even though it is only two weeks into 2021, market experts remain optimistic over their performance due to the "blue wave"-sparked hopes for a rise in the interest rate.

"We maintain our outlook on a bullish run of bank shares in 2021, as the blue wave-driven interest rate momentum signals the re-rating of shares," Hana Financial Investment analyst Choi Chung-uk said.

Most bank shares here failed to achieve any meaningful movement in 2020, as the financial authorities toughened their restrictions on banks' major businesses amid the year-long shock of the coronavirus pandemic here.

With the authorities blocking them from engaging in aggressively making loans, and instead pushing them to store up cash for bad debts, investors paid little attention to their growth last year. On top of that, the government also pressed them to reduce dividends, in what they said was a move to brace for the worst-case scenario of a possible virus-induced market panic.

But such fear factors are expected to subside to some extent this year, as chances remain slim for major lenders to increase their bad debt reserves, according to Choi. The blue wave momentum also raised hopes for them to report a decent rise in their net interest margin in the first quarter, he said.

SK Securities economist Koo Kyung-hoi also recommended investors to purchase more bank shares amid growing signs of growth in margins thanks to the expectations of an interest rate rise.

Bank shares have risen 3.7 percent over the six trading days from Jan. 4. Although this still fell behind the 9.6 percent growth of the benchmark KOSPI. The analyst attributed the weak growth to lingering uncertainties over bank dividends.

"After they release their 2020 earnings report late this month, however, bank shares will start jumping on track for a rebound," he said.

Investors' disappointment in banks' reduced dividends has already been reflected in their stock prices, according to him. But from the beginning of late January, the positive outlook on the interest rate will start offsetting the fear and help drive up their stock prices, he said.

Despite the overall optimism over their medium-term growth here, major bank shares nudged down on Thursday. Shares of KB Financial Group closed at 46,550 won, down by 1.59 percent from the previous trading day. Shinhan shares also fell by 0.44 percent and closed at 34,050 won, with Hana closing at a 2.36 percent drop at 39.250 won. Woori shares, however, inched up by 0.5 percent and closed at 10,100 won.


Lee Min-hyung mhlee@koreatimes.co.kr

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