Bank, chip stocks gain ground on strong foreign appetite

[Photo by MK DB]

South Korea’s benchmark Kospi index jumped over 2 percent Monday to rise above 2,350 on the back of strong buying by foreign and institutional investors.

According to Korea Exchange on Monday, offshore investors have net purchased 1.83 trillion won ($1.47 billion) in Kospi shares this year as of Monday. They led Kospi to rebound in five weeks, growing in influence in a market where individual investors have left in the New Year.

Bank, chip, construction, and media and entertainment stocks that fell sharply last year are on rise this year thanks to strong foreign demand. Bank shares in particular rose 13.8 percent in the first six trading days this year.

Foreigners’ favorite stock was Samsung Electronics Co. They net bought 685.1 billion won in the tech giant’s shares so far this year and 125 billion won in SK hynix Inc.

Foreign demand for bank stocks was also high - they net bought 98.9 billion in KB Financial Group, 87 billion won in Hana Financial Group, and 84 billion won in Shinhan Financial Group.

Strong foreign buying comes as chip and bank stocks have been undervalued.

“The trailing price-to-book ratio (PBR) of chip stocks is below 1,” said Noh Dong-gil, an analyst at Shinhan Securities Co. “The PBR of bank stocks has also fallen to 0.4x while return on equity (ROE) is at relatively high level of 10.8 percent.”

[Photo by Lee Seung-hwan]

Investor sentiment on chip and bank stocks is strong on multiple positive factors, such as the Korean government’s measures announced this year to offer more tax incentives on chip facility investments and possible production cut by Samsung Electronics.

Kiwoom Securities Co. on Monday projected Samsung Electronics’ capex at 49 trillion won this year, far below last year’s estimated amount of 54 trillion won.

Samsung Electronics announced earlier to maintain facility investment this year at last year’s level but industry insiders noted that the tech giant will have to revise its plan due to sluggish chip industry.

Bank stocks are also high in demand on growing expectations for improved shareholder return policy that can raise financial groups’ ROE outlook, according to Noh.

Construction stocks are also on the rise thanks to eased property-related regulations. Institutional investors have net purchased 39 billion won in Hyundai Engineering & Construction Co. shares.

Analysts, however, warn that investors should be aware of continued sluggish economy and possible weakening market expectations for U.S. base rate fall, recovery in Chinese economy, and improved chip industry.