Mirae Asset Favors Korean Lenders on Possible Central Bank Rate Increases

Mirae Asset Securities Co. favors South Korea’s life insurance and bank stocks, saying that the central bank is likely to raise interest rates as early as this month given the nation’s economic growth.

The Bank of Korea may increase rates by 25 basis points when it meets on Sept. 9 and by a further 25 basis points in December, said Charles Kim, head of South Korean equity sales. South Korea’s gross domestic product grew 1.4 percent in the three months to June from the first quarter, the Bank of Korea said in Seoul today.

“With the life insurance and banking sector underperforming the Kospi in the last six months, we’ll probably see some interest in these sectors in the next few months with rising rates,” Kim in a Bloomberg Television interview. “All these sectors benefit from rising interest rates because they have asset-liability mismatch.”

South Korea’s benchmark Kospi index has gained 6 percent this year, paced by a 33 percent surge in automakers and industrial equipment makers as a weakening won boosted exporters. A measure of financial stocks in the Kospi has declined 7.1 percent during the same period.

Kim’s preference for banks isn’t shared by JPMorgan, which lowered its recommendation on South Korean lenders on Aug. 26, citing “some deterioration” in asset quality and “continued regulatory intervention.”Adrian Mowat, the brokerage’s chief Asian and emerging-markets strategist, today cut his rating on the overall market to “neutral” from “overweight” following the downgrade on banks.

Rising Rates

The central bank increased the benchmark interest rate by a quarter-point to 2.25 percent in July, the first advance since the global financial crisis. It left the rate unchanged last month, while signaling further increases to damp price pressures stoked by the domestic recovery.

The won climbed 0.3 percent to 1,180.90 per dollar in Seoul yesterday, according to data compiled by Bloomberg. The currency is the worst performer among the 10 most actively traded in Asia outside of Japan, having declined 1.3 percent this year.

The won is “undervalued by any measure” and will face “very strong pressure to appreciate” should the central bank decide to keep interest rates low, Mirae Asset’s Kim said.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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