JP Morgan: The pullback in South Korean bank stocks is a buying opportunity

After a night of chaos in South Korea, investors are "worried," and financial stocks are "plummeting," but JP Morgan believes, "This is an opportunity."

Recently, analysts at JP Morgan stated that the recent pullback in South Korean financial stocks due to political turmoil has provided a buying opportunity for investors, as they expect Korean banks to continue striving to enhance shareholder returns.

Recently, due to market concerns about the future of the "Corporate Value Enhancement Plan" launched by the South Korean government, bank stocks have been "hit hardest" in the market sell-off. This initiative is part of the current government's key policies to address the long-term decline in stock market valuations, with speculators viewing financial stocks as representatives of bets on increased returns.

In the past two trading days, the South Korean bank stock index has fallen by more than 9%, with the stock price of KB Financial Group, the largest bank's parent company in South Korea, dropping more than 10% today, and the stock prices of Shinhan Financial Group and Hana Financial Group also falling by over 4%.

However, JP Morgan analyst Jihyun Cho believes that while the legislative process required for a more effective Corporate Value Enhancement Plan may currently have lost momentum, the efforts made by individual companies may still hold promise for achieving operational and shareholder return goals. They stated:

“We believe the short-term pullback is a re-entry point.”

Therefore, considering the valuation advantages and shareholder returns of these financial groups, JP Morgan maintains its overweight rating on Hana Financial, KB Financial, and Shinhan Financial.

Since the beginning of this year, South Korean bank stocks have been favored by the market due to their relatively low price-to-book ratios, with the market generally expecting the industry to be a major beneficiary of government reforms. Notably, before the South Korean president announced the state of emergency, the sub-index of South Korean bank stocks reached a new high in over six years on December 3rd. JP Morgan analysts emphasized:

“We will not solely focus on the political situation but will pay more attention to the banks' profitability and sufficient capital buffers, especially among large banking groups, to support dividend increases.”