Regulations hamper growth of Korean financial stocks

17-Jan-2020 Intellasia | KoreaTimes | 7:02 AM Print This Post

Korean financial stocks are stuck in decades-long doldrums, as ever-toughening regulations keep dampening investors’ appetite for major banking players here, experts said Wednesday.

This is in contrast to impressive growth of financial stocks in the United States during the same period.

The S&P 500 Financials index closed at 511.95 on January 14, up more than 150 percent from a decade ago. The figure is comprised of US common stocks in the financial sector, such as banks, brokerages and real estate.

Of note is that the index has shown stable upward momentum with minimal fluctuations, while stocks of Korea’s major financial players have undergone wide price movements and failed to report growth during the same period.

Shinhan Financial Group, the nation’s largest financial holding firm by market capitalisation, closed at 41,850 won ($36.14) Wednesday, achieving little growth from a decade ago when its valuation remained at a very similar level.

Other top-tier financial firms here ? KB, Hana and Woori ? followed in Shinhan’s footsteps in terms of weak growth during the past decade.

This has sparked the consensus that the nation’s financial sector needs to remain agile in finding new growth momentum so as not to fall behind any longer on the global market.

“Simply put, regulatory hurdles have held back their growth,” DB Financial Investment economist Lee Byung-gun said. “Specifically, the issue made foreign investors continue to take a dim view of Korean financial stocks.”

To make matters worse, some of the leading financial firms have recently been involved in a scandal regarding the mis-selling of financial products, with hundreds of private investors here falling victim.

Following the sales fiasco, financial regulators here have pledged to tighten the monitoring of major lenders’ business activities in 2020, a move critics said will have a negative impact on the further growth of market players.

“It will continue to remain tough for them to attract more foreign capital under the current regulation-ridden business environment,” Lee said.

It cannot be stressed enough that the outlook for the US financial stocks is promising, he added.

“On the global front, financial stocks from any other countries cannot be compared with those from the US in terms of their growth potential,” he said.

“Korean financial stocks look to have lost their momentum for growth in comparison with those in the US But when you compare stocks from China, Europe or any other countries with the ones in the US, nothing can catch up with the latter’s rapid growth as of now.”

Ha In-hwan, another economist at Meritz Securities, pointed out that signs of a loosening of regulations in the US market have driven the bullish run in the country’s financial stocks.

“Major US banking and financial stocks underperformed the S&P 500 Index before an easing of the Volcker Rule, but they started outperforming the latter after an easing of the regulation and reported higher profitability than other industries,” he said.

The rule, introduced in January 2010, blocks banks from taking advantage of customer deposits for their own profit.


Category: Korea

Print This Post