Which Financial Stocks Are Favored Amid Macroeconomic Changes? [Weekend Money]

Meritz Securities: "Banks, Insurers, and Securities Firms Most Favorable in That Order"

Shinhan Financial Group Selected as the Top Bank Sector Pick

As changes in macroeconomic indicators such as rising base rates and falling won-dollar exchange rates are expected, Meritz Securities has cited banks as the most favorable sector among financial stocks, including banks, insurers, and securities firms.

Photo by Google Gemini Generated

On September 6, Meritz Securities issued a report titled "Financial Stocks Viewed Through Macro Variables," stating, "Taking into account our macro outlook and shareholder return capabilities, we rank financial sectors in the order of banks, insurers, and securities." Meritz Securities maintained its investment recommendation of "Overweight" for both the bank and securities sectors and upgraded its stance on the insurance sector to "Overweight."

Meritz Securities forecasts the base rate to rise to 3.25% for this year and 3.5% for next year. The firm expects real GDP growth to reach 3.4% year-on-year for this year, while the won-dollar exchange rate is projected to fall to 1,360 won in the fourth quarter.

In the case of banks, the sector is analyzed as the most positive under the current macroeconomic environment. This is because rising market rates drive improvement in banks’ net interest margins (NIM). In addition, the company noted that an economic recovery and higher corporate bond yields are likely to increase corporate demand for bank loans, creating further upside for banks. Meritz Securities also pointed to the stabilization of credit cost ratios due to the economic recovery, and the potential for increased shareholder returns due to the strengthening of the won against the dollar.

For insurance companies, the current macro environment is considered favorable, as it can lead to capital expansion and higher yields on new investments. In addition to macro factors, the firm identified the positive impact of managed reimbursement for manual therapy and the overall improvement prospects for the insurance industry as additional upside elements. Although there is high uncertainty regarding distributable earnings, Meritz Securities noted that certain insurers may be able to resume dividend payouts immediately if the surrender value reserve system is improved.

As for the securities sector, volatility in market environment and earnings is expected due to rising interest rates. However, Meritz Securities believes these concerns have already been priced in to current valuations. While profit volatility is likely to be high in the second half of the year, the company noted that robust performance in the first half, driven by a favorable financial market environment, supports a valid high-dividend approach.

Regarding the insurance and securities sectors, the report concluded that the current phase of the exchange rate decline acts as a neutral factor—neither positive nor negative. Jo Ahae, an analyst at Meritz Securities, explained, "This is positive for banks in terms of foreign exchange gains and improved capital ratios, but some negative impacts on investment returns may occur for non-bank financials. However, as non-banks are generally hedged, the effect is neutral."

For top picks, Meritz Securities selected Shinhan Financial Group for banks, Hyundai Marine & Fire Insurance for insurers, and Samsung Securities for the securities sector. Hana Financial Group (bank) and DB Insurance (insurance) were named as second-best picks.

This content was produced with the assistance of AI translation services.