Bank stocks jump up 20% this year on foreigner buying spree

Equity purchases of the four big financial holdings groups by foreign and institutional buyers over the two weeks topped 734 billion won. [Photo by MK DB]

Banks led a rise in the stock market as foreign buyers and institutional investors bought more than 700 billion won ($565 million) of these shares since the start of the year on expectations of higher earnings this year and shareholder returns.

Equity purchases of the four big financial holdings groups by foreign and institutional buyers over the two weeks from Jan. 2 to Jan. 16 topped 734 billion won, Korea Exchange said on Tuesday. The four are KB Financial Group Inc., Shinhan Financial Group Co., Hana Financial Group Inc. and Woori Financial Group Inc.

Shinhan was most popular, with foreigners buying up some 229.5 billion won of its equity. KB saw 218 billion won of its shares being bought, and Hana 207 billion won.

Foreign buyers made a 75.7 billion won purchase of Shinhan equity on Monday alone this week. That exceeded foreign purchases of Samsung Electronics Co. that day, which totaled 67 billion won.

Since the new year began, Hana Financial Group has seen its equity price go up by 28.92 percent, to 52,600 won per share, from 48,000 won. Other financial holdings companies have all seen a surge in their equity prices, with a 27.7 percent hike at Shinhan Financial Group, a 26.05 percent rise at KB Financial Group and an 18.22 percent rise at Woori Financial Group.

The KRX bank index, which includes the four megabanks as well as the Industrial Bank of Korea and KakaoBank Corp., saw a 21.1 percent rise since the new year. Foreign buyers also bought other financial companies, including JB Financial Group Co., Ltd, BNK Financial Group Inc. and DGB Financial Group.

Market watchers attribute the upward trends in bank equity prices to expectations of shareholder-friendly policies, as those banks see better earnings even though there are concerns about the sluggish domestic economy.

“Industries with stable earnings potentials were not hit during the economic slowdown in the past, compared to the general stock market performance, and one of those sectors were banks,” said Kyobo Securities Co., Ltd. analyst Kim Ji-young. “In the long term, banks will do good.”

Another actor in the bullish bank trend is Align Partners Capital Management Inc. The private equity firm, known for its activist voice, earlier sent a letter to seven Korean financial holding companies and asked them to increase their shareholder returns.

Shinhan saw more than an eight percent rise in its stock price in one trading session following media reports of the company’s decision concerning dividends. The financial group has allegedly decided to maintain its capital ratio at 12 percent, and to return the entire remaining amounts to its shareholders if the ratio exceeds 13 percent.

Some have negative prospects, however, concerning bigger shareholder returns as a bank‘s capital reallocation and bigger dividends are often directly in the hands of regulators and soundness requirements. Bank liquidity management could be another challenge to bigger shareholder returns, too.

“Many investors have arrived at a consensus concerning adequate growth and higher shareholder returns, but putting a limit on the risk-weighted assets is not that simple,” said Kim Jae-woo, an analyst at Samsung Securities Co., raising concerns about liquidity strain and other risks, as well as middle- or lower-credit borrowers having limited access to banks.