Korea’s banking and securities stocks are still undervalued, local analysts say, although their prices are on the path to recovery in June.

The weighted banking index on the Kospi gained 8.78 percent in June, with corresponding figures for securities and insurance sectors up 1.86 percent and 3.61 percent, respectively.

But the recovery is far from enough compared to their performance at the beginning of this year. The banking index is about 10.8 percent lower versus January’s and the curve is about the same for the other two sector indices.

“The banking sector’s ratios in price to book value and price to earnings slid to 0.54 times and 6 times, respectively as uncertainty from probe on hiring irregularities, frequent replacements of the country’s chief financial regulator and tighter loan regulations weighed on investor sentiment. But these factors do not justify their undervaluation against strong earnings,” said Kim Eun-gap, a researcher at IBK Investment and Securities.

This view was echoed by Hana Financial Investment, which recommended buys in bank and securities stocks, saying their 12-month forward P/E ratio is 6.3 times and 8.6 times, respectively, lower than nine times of the Kospi average.

“Loans to small firms and households are relatively profitable, contributing to a better performance of banks, while interest income will remain on a steady upward curve alongside interest rate hikes,” said Yoo Seung-chang, an analyst at KB Securities.

For the securities sector, the daily average trading value hit 15 trillion won ($13.85 billion) in May and maintained the 13 trillion won level in June, while better business results are expected. In addition, the outstanding balance of margin transactions where investors can invest in stocks by taking out loans from securities firms hit a new high of 12.6 trillion won.

By Chung Seul-gi and Minu Kim

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