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2018.8.1 |
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Korean Financial Groups | ||||||||||||||||
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Indices | ||||||||||||||||
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KRX Bank 868.56 (+0.51%) | ||||||||||||||||
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KOSPI200 298.69 (+0.42%) | ||||||||||||||||
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G 30y 2.551% (+0.019%) | ||||||||||||||||
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G 10y 2.590% (+0.023%) | ||||||||||||||||
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G 3y 2.136% (+0.013%) | ||||||||||||||||
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USDKRW 1,120.6 (+0.17%) | ||||||||||||||||
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1. Their performances during 2Q18 was great. And the index has followed the performance. Unlike Well Fargo, one of the biggest commercial banks in United States, global yield flattening didn’t give huge impact to NIM of the sector. NIM of the banks increased overall, and their interest revenue also increased even though market yield fluctuated. The performance was affected as catalyst. Since June 1, the index has risen by 3.94% while KOSPI200 has dropped 3.93%. Considering their performances, we can decided that influence of overall regulations targeting the sector like squeezing mortgage loans, lowering fees of credit card or promoting payments of insurances weren’t bringing big impact. Attractive valuation would be another reason for the rise. I hate to use PER or PBR to estimate share-price, but let see them anyway. Their PBRs are as low as their European counterparts which are struggling to fight with bad loans: KB 0.64, Shinhan 0.64, Hana 0.55, Woori 0.67. The numbers become much lower than they did at starts of this year, when share-price of KB financial group was higher than KRW65,000. | ||||||||||||||||
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2. What analysts are worrying about isn’t a problem. Analysts are worrying about that the sector’s dependence on interest revenue and a part of commercial bank is too much. Their parts of credit card and insurance weren’t that good. But the situation wouldn’t be problem considering market yield would be rising continuously. If business of making interest revenue is good enough, why should they do other businesses? And I believe the yield will go up continuously because the stock market isn’t dead yet. Risk-aversion wouldn’t come up strongly in near future, while volatilities would remain in the markets. And as many market participants expected, BOK will rise their benchmark rate at least once in this year. This will be additional factor which will bring rise of market yield and volatilities. Increasing volatilities will be plus factor for the financial groups which are providing securities services like Sales and Trading.
Net profits of parts of securities services.
You can see their profits were increasing strongly. I think those strong profits from securities service will be continued with high-level of market volatilities. | ||||||||||||||||
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3. Pace of yield flattening in the region isn’t fast at all, unlike I expected. The reason why I recommend to reduce Wells Fargo in your portfolio is the fastest pace of yield flattening. US 2s10s was 50-60bp level in early this year. But in now, it is 30bp level. Pessimists are strongly arguing that it is an evidence for bubble of the overall markets, and bubble-crush could be realized anytime soon. But I believe that we can wait more, because the spread is still positive. Even after the spread become minus, it will need at least six months to bring realization of bubble crush. Unlike US counterpart, Korean long-short spread has preserved its band since early this year.
Yield spread in Korean government bond 10y-3y
The curve become steepening as you see the picture. Increase of NIM during 2Q18 was based on steepening yield curve. In now, it become more flattening than it did during 2Q. But I believe there is enough possibility of being reversed to steepening again. considering possible recovery of stock market. | ||||||||||||||||
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4. The manipulation in regional stock market is over, and Bank sector will be trying to rise again. The sector got one of the hardest hits among sectors in regional stock market during first half of this year. But I believe the market participants think the fall was too much. The sector doesn’t have the lowest interest rates like Japan or Europe do or big exposure to the risks for tightening policies of Europe, Japan or China. The regulation targeting them isn’t that severe unlike I expected. Movement of yield spread also looks like good, so I believe the sector will enter to bullish movement. I suggest BUY to the sector. My first Target prices for the groups are like below: KB finance \57,000 (+7.6%) , Shinhan \48,000 (+10.85%) , Hana \48,000 (+6.7%) | ||||||||||||||||
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Mr. Banker, http://markety.tistory.com | ||||||||||||||||
Korean Financial Groups (August 1) .pdf