Local retailers are continuing to show a strong preference for banking shares, pricing in the projection that financial service providers will enhance their shareholder returns as indicated in their “value-up” regulatory filings.

Though the local stock market has been fluctuating due to the recent political turmoil in the country and the hawkish tone of the US Federal Reserve, banking shares remain relatively unscathed as local retail investors remain net purchasers.

Between Dec. 4, the first trading day after President Yoon Suk Yeol’s martial law declaration, and Friday, banking shares were among retail investors' most-bought stocks on the benchmark Kospi, exceeded only by market bellwether Samsung Electronics.

While retailers racked up Samsung Electronics shares worth 339 billion won ($234 million) in the period, KB Financial Group was their second pick, with net purchases of 309 billion won.

Retail investors purchased a net 172 billion won in shares of Hana Financial Group and 146 billion won in Shinhan Financial Group. Woori Financial Group was the 10th most-bought stock on the list, with net purchases totaling 74 billion won.

The foreign ownership rates of the top financial service providers stand strong as well. Foreigners held a 76.88 percent stake in KB Financial Group as of Monday, showing only a slight decline from 78.04 percent on Dec. 4.

Fluctuations in the ownership rate were similar for other financial service providers. Foreigners own 67.65 percent of Hana, 60.15 percent of Shinhan, and 45.88 percent of Woori, with all three displaying less than a 2 percent decline in the period.

“After experiencing a strong rally earlier in the year, banking shares inched down in December,” analyst Kim Jae-woo from Samsung Securities said. “Yet the differentials in the foreign ownership rate remain limited, showing long-term investors’ unchanged view of the banking industry.”

Market watchers also attribute the relative stability to local banking groups’ recent efforts to boost shareholder returns. Over the past year, banking groups have been at the forefront of the government’s “corporate value-up program,” pledging to enhance dividend payouts.

Amid this outlook, Capital Group Companies, a major US-based asset manager overseeing assets worth nearly 4,000 trillion won, has upped its stakes in major local financial groups.

Capital Group holds a 7.07 percent stake in KB, up from the 4. 88 percent holding at the end of October. It owns a 5.55 percent stake in Hana, slightly higher than the previous 5.08 percent. It is the second largest shareholder in the two financial providers, following the country’s state-run National Pension Service.

"Despite the concerns, the Korea Exchange's plan to form a value-up fund is on track, and businesses are continuing to announce their intentions to participate in the program," analyst Park Hye-jin from Daishin Securities said. "Banking shares, backed by stronger shareholder returns, can be an alternative in a sluggish stock market."

BY Im Eun-byel (silverstar@heraldcorp.com)