Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

Korea's financial regulators, the Financial Services Commission, had advised the local banks and bank holding companies to keep a dividend payout ratio below 20%. The purpose was clear. It was to secure a sufficient capital buffer to absorb potential losses resulting from COVID-19.This recommendation for the 20% cap is effective until the end of this month.The market widely expects the FSC to not renew this 20% dividend cap after this month amid the fast-rebounding economy.

Korea's financial regulators, the Financial Services Commission, had advised the local banks and bank holding companies to keep a dividend payout ratio below 20%. The purpose was clear. It was to secure a sufficient capital buffer to absorb potential losses resulting from COVID-19.This recommendation for the 20% cap is effective until the end of this month.The market widely expects the FSC to not renew this 20% dividend cap after this month amid the fast-rebounding economy.

Korea Banks 20% Dividend Cap Scrapping: Projected Div Payout & Yield of 8 Bank Stocks

Korea's local banks are still going strong as an inflation hedge stock. In particular, the sector leaders continue to shine the most, which is understandable.Shinhan Financial Group has outperformed most of its local peers of late, causing a harsh diversion vs. several names.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="70">
<col width="70">
<col width="200">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1 (long)"}'>Comp 1 (long)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td data-sheets-value='{"1":2,"2":"Comp 2 (short)"}'>Comp 2 (short)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}'>Woori Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":316140}'>316140</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7981.05789715}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩7,981.1B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9223855252672568}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.92</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.7434864364413833}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.74</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}'>Hana Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"086790"}'>086790</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13676.0259241}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩13,676.0B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9415706574402087}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.94</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.6583215542673198}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.66</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"105560"}'>105560</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23701.05144}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩23,701.1B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9610188453950309}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.96</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.5589371642688024}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.56</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}'>BNK Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"138930"}'>138930</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2591.1852057}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩2,591.2B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.972704739094366}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.97</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.0491776745143695}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.05</td>
</tr>
<tr><td colspan="8">Source: KRX 
</td></tr>
</tbody>
</table>The harshest diversion at this point goes to Woori Financial Group. The current sigma is -1.74 on a 20-day moving average. Its price ratio relative to Shinhan is now 9.55% below the 180-day average. In fact, it is at a 180-day low.<table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Price ratio"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Price ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day mean"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day mean</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day high"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day high</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day low"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day low</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">Woori Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.09551050492215632}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-9.55%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.158687466379774}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-15.87%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">0.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">Hana Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.007327297625351524}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-0.73%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.10178905429741551}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-10.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.14368007113294015}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">14.37%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.022657232352227285}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-2.27%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.1009918086293668}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-10.10%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08257600627747405}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">8.26%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">BNK Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.037819100378221324}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">3.78%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.048692073349346776}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-4.87%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.12800025002083512}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">12.80%</td>
</tr>
<tr><td colspan="4">Source: KRX</td></tr>
</tbody>
</table><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/024/original/Woori+Financial+Group+Inc+vs.+Shinhan+Financial+Group+Co.%2C+Ltd.png?1622371064" class="editor-image img-responsive" data-smartkarma-image-id="210024"></figure></section>

Korea's local banks are still going strong as an inflation hedge stock. In particular, the sector leaders continue to shine the most, which is understandable.Shinhan Financial Group has outperformed most of its local peers of late, causing a harsh diversion vs. several names.












Comp 1 (long)
Ticker
Market cap
Comp 2 (short)
Ticker
Market cap
180-day correlation coefficient
Sigma on a 20-day moving average


Woori Financial Group Inc
316140
₩7,981.1B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.92
-1.74


Hana Financial Group Inc
086790
₩13,676.0B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.94
-1.66


KB Financial Group Inc
105560
₩23,701.1B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.96
-1.56


BNK Financial Group Inc
138930
₩2,591.2B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.97
-1.05

Source: KRX 


The harshest diversion at this point goes to Woori Financial Group. The current sigma is -1.74 on a 20-day moving average. Its price ratio relative to Shinhan is now 9.55% below the 180-day average. In fact, it is at a 180-day low.








Price ratio
%Δ to 180-day mean
%Δ to 180-day high
%Δ to 180-day low


Woori Financial Group Inc
-9.55%
-15.87%
0.00%


Hana Financial Group Inc
-0.73%
-10.18%
14.37%


KB Financial Group Inc
-2.27%
-10.10%
8.26%


BNK Financial Group Inc
3.78%
-4.87%
12.80%

Source: KRX



Korea Financials: Woori Vs. Shinhan Price Ratio at a 180-Day Low

I grouped Korea's closely correlated sector pairs within the same GICS sub-category. I applied the additional filtering: 1. a market cap of ₩1T or more and 2. stocks eligible to short-selling (KOSPI 200 and KOSDAQ 150). This grouping returns 141 sector pairs worthy of close monitoring for a long/short trade.<div class="content-highlight">You can find all the 141 sector pairs with the 180-day correlation coefficients and the sigma on a 20-day moving average in the attached file.</div><hr>Below are the top 10 most correlated sector pairs above a 180-day correlation coefficient of 0.95 or higher. They are mostly cyclical stocks, which are in line with our conventional thinking that cyclical stocks have a stronger tendency to move together than growth stocks.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1"}'>Comp 1</td>
<td data-sheets-value='{"1":2,"2":"Comp 2"}'>Comp 2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Business type"}'>Business type</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}'>Korea Shipbuilding &amp;Offshore Engn Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.97405}'>0.97405</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shipbuilding"}'>Shipbuilding</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd"}'>Hyundai Department Store Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}'>Lotte Shopping Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.97033}'>0.97033</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Retail"}'>Retail</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GS Engineering &amp; Construction Corp"}'>GS Engineering &amp; Construction Corp</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Engineering &amp; Construction Co."}'>Hyundai Engineering &amp; Construction Co.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.96379}'>0.96379</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Construction"}'>Construction</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"HYUNDAI MOBIS CO., LTD."}'>HYUNDAI MOBIS CO., LTD.</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Motor Co"}'>Hyundai Motor Co</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.96145}'>0.96145</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Automotive"}'>Automotive</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95989}'>0.95989</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Commercial bank"}'>Commercial bank</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"LG Innotek Co., Ltd."}'>LG Innotek Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"LG Electronics Inc."}'>LG Electronics Inc.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95986}'>0.95986</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"IT"}'>IT</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hansol Chemical Co Ltd"}'>Hansol Chemical Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Posco Chemical Co Ltd"}'>Posco Chemical Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95374}'>0.95374</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Chemical"}'>Chemical</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hanwha Aerospace Co Ltd"}'>Hanwha Aerospace Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Korea Aerospace Industries Ltd"}'>Korea Aerospace Industries Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95243}'>0.95243</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Aerospace"}'>Aerospace</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KG DongbuSteel Co Ltd"}'>KG DongbuSteel Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"POSCO"}'>POSCO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95174}'>0.95174</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'>Steel</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KG DongbuSteel Co Ltd"}'>KG DongbuSteel Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Steel Co"}'>Hyundai Steel Co</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.94972}'>0.94972</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'>Steel</td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>Below are the top 10 stocks suffering the harshest diversion on a 20-day moving average among those having a 180-day correlation coefficient of 0.80 or higher. E-Mart and Lotte Shopping top the list with a -3.27σ and a correlation coefficient of 0.85. Silicon Works/LG Electronics and BGF Retail/E-Mart follow as they are also in a heavy diversion at +2.79σ and +2.58σ, respectively. Woori Financial/KB Financial and Pan Ocean/HMM aren't far away either.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1"}'>Comp 1</td>
<td data-sheets-value='{"1":2,"2":"Comp 2"}'>Comp 2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"E-Mart Inc"}'>E-Mart Inc</td>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}'>Lotte Shopping Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8512795053699035}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.85128</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-3.2691212591928522}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-3.27</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Silicon Works Co Ltd"}'>Silicon Works Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"LG Electronics Inc."}'>LG Electronics Inc.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8241051481549174}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.82411</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.794228170493331}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.79</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd"}'>BGF Retail Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"E-Mart Inc"}'>E-Mart Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.847331528848073}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.84733</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.5786176868102397}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.58</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}'>Woori Financial Group Inc</td>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8451741524292201}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.84517</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.465145723060455}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-2.47</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Pan Ocean Co Ltd"}'>Pan Ocean Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"HMM Co Ltd"}'>HMM Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.935905540581882}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.93591</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.33130934144712}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-2.33</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}'>Korea Shipbuilding &amp;Offshore Engn Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9740462682980674}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.97405</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.2401490556241117}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.24</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Innovation Co Ltd"}'>SK Innovation Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Samsung SDI Co Ltd"}'>Samsung SDI Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9458691690353619}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.94587</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.1867120471913637}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.19</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hanwha Aerospace Co Ltd"}'>Hanwha Aerospace Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Korea Aerospace Industries Ltd"}'>Korea Aerospace Industries Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9524282780324967}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.95243</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.086128932784612}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.09</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Daewoo Engineering &amp; Construction Co Ltd"}'>Daewoo Engineering &amp; Construction Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8206840084895756}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.82068</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.9737577992711182}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>1.97</td>
</tr>
<tr>
<td>Woori Financial Group Inc</td>
<td>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;">0.87902</td>
<td style="text-align: right;">-1.93</td>
</tr>
<tr><td colspan="4" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>

I grouped Korea's closely correlated sector pairs within the same GICS sub-category. I applied the additional filtering: 1. a market cap of ₩1T or more and 2. stocks eligible to short-selling (KOSPI 200 and KOSDAQ 150). This grouping returns 141 sector pairs worthy of close monitoring for a long/short trade.You can find all the 141 sector pairs with the 180-day correlation coefficients and the sigma on a 20-day moving average in the attached file.Below are the top 10 most correlated sector pairs above a 180-day correlation coefficient of 0.95 or higher. They are mostly cyclical stocks, which are in line with our conventional thinking that cyclical stocks have a stronger tendency to move together than growth stocks.








Comp 1
Comp 2
180-day correlation coefficient
Business type


Hyundai Mipo Dockyard Co., Ltd.
Korea Shipbuilding &amp;Offshore Engn Co Ltd
0.97405
Shipbuilding


Hyundai Department Store Co Ltd
Lotte Shopping Co Ltd
0.97033
Retail


GS Engineering &amp; Construction Corp
Hyundai Engineering &amp; Construction Co.
0.96379
Construction


HYUNDAI MOBIS CO., LTD.
Hyundai Motor Co
0.96145
Automotive


Shinhan Financial Group Co., Ltd.
KB Financial Group Inc
0.95989
Commercial bank


LG Innotek Co., Ltd.
LG Electronics Inc.
0.95986
IT


Hansol Chemical Co Ltd
Posco Chemical Co Ltd
0.95374
Chemical


Hanwha Aerospace Co Ltd
Korea Aerospace Industries Ltd
0.95243
Aerospace


KG DongbuSteel Co Ltd
POSCO
0.95174
Steel


KG DongbuSteel Co Ltd
Hyundai Steel Co
0.94972
Steel

Source: KRX

Below are the top 10 stocks suffering the harshest diversion on a 20-day moving average among those having a 180-day correlation coefficient of 0.80 or higher. E-Mart and Lotte Shopping top the list with a -3.27σ and a correlation coefficient of 0.85. Silicon Works/LG Electronics and BGF Retail/E-Mart follow as they are also in a heavy diversion at +2.79σ and +2.58σ, respectively. Woori Financial/KB Financial and Pan Ocean/HMM aren't far away either.








Comp 1
Comp 2
180-day correlation coefficient
Sigma on a 20-day moving average


E-Mart Inc
Lotte Shopping Co Ltd
0.85128
-3.27


Silicon Works Co Ltd
LG Electronics Inc.
0.82411
2.79


BGF Retail Co Ltd
E-Mart Inc
0.84733
2.58


Woori Financial Group Inc
KB Financial Group Inc
0.84517
-2.47


Pan Ocean Co Ltd
HMM Co Ltd
0.93591
-2.33


Hyundai Mipo Dockyard Co., Ltd.
Korea Shipbuilding &amp;Offshore Engn Co Ltd
0.97405
2.24


SK Innovation Co Ltd
Samsung SDI Co Ltd
0.94587
2.19


Hanwha Aerospace Co Ltd
Korea Aerospace Industries Ltd
0.95243
2.09


Hyundai Mipo Dockyard Co., Ltd.
Daewoo Engineering &amp; Construction Co Ltd
0.82068
1.97


Woori Financial Group Inc
Shinhan Financial Group Co., Ltd.
0.87902
-1.93

Source: KRX



Korea Sector Long/Short Pairs Trade Ideas

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank PCL (TMB TB)</a>, <a href="https://www.smartkarma.com/entities/banco-santander-brasil-sa" target="_blank" data-smartkarma-citation="entities:27709:1" rel="noopener">Banco Santander Brasil SA (SANB11 BZ)</a>, <a href="https://www.smartkarma.com/entities/citizens-financial-group" target="_blank" data-smartkarma-citation="entities:16004:1" rel="noopener">Citizens Financial (CFG US)</a>, <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> and <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>.  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: <a href="https://www.smartkarma.com/insights/chong-hing-bank-at1-alchemy" target="_blank" data-smartkarma-citation="insights:41645" rel="noopener">Chong Hing Bank: AT1 Alchemy</a>. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities.

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by TMB Bank PCL (TMB TB), Banco Santander Brasil SA (SANB11 BZ), Citizens Financial (CFG US), Grupo Financiero Banorte-O (GFNORTEO MF) and Banco Do Brasil Sa (BBAS3 BZ).  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: Chong Hing Bank: AT1 Alchemy. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities. 

Bank Credit Strategy: Pre-Positioning for AT1 Price Accretion

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.  

South Korea

Woori Financial Group Inc. provides commercial banking services. The Company offers deposit services, loan services, bill services, settlement services, credit card, international, online banking, and other related services. Woori Financial Group also operates banking and retail banking businesses.

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Woori Financial Group (316140 KS)

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Banks – Bad Loan Delta

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays,...

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