Shares in the financial sector have risen 5.83 percent on the local bourse since the beginning of this year, outranking the broader market’s 1.59 percent increase, which analysts attributed to a run of positive news such as onshore Chinese yuan business being introduced in February, and new agreements being reached by cross-strait financial regulators earlier this month.
However, financial shares might be in line for a pullback or correction before the summer, following the next round of cross-strait talks on the Economic Cooperation Framework Agreement (ECFA) to ratify access for brokers, and expanded access and cross-strait holdings for banks, SinoPac Securities Investment Service Co (永豐投顧) said in a note on Friday.
Currently, financial shares are trading at about 1.16 times their book value and this ratio is likely to increase to 1.4 times by the end of the year or early next year if there are breakthroughs on cross-strait shareholdings in banks, interest rate normalization and steady progress in their China operations, SinoPac Securities said.
Prior to that, analysts said investors should refocus on the sector’s business fundamentals, such as revenue growth and underlying profitability.
“Neither of which is altogether impressive or likely to drive valuations higher in the immediate near term,” Warden said.