Banking (Neutral): The banks’ PBR will likely rise to 0.8x if the FX rate
stabilizes at W1,150-1,250 against the USD. Banking shares should gain
further if the effects of interest rate cuts are felt by the real economy. The Bank
of Korea aggressively slashed the key interest rate in 2008. Nonetheless, we
believe it will take a significant amount of time before the credit crunch relief
becomes visible given that restructuring the real economy is not a simple
process. The KIS Universe banks currently trade at a 12-month-forward PBR of
0.7x and are unlikely to significantly surpass the previous peak of 0.8x until the
impact and related losses from restructuring become predictable.
Brokerage (Neutral): In January, we maintain Neutral on the brokerage
sector, but believe it offers short-term upside potential, driven by expectations
for growth in the stock market and the stabilization of financial market indicators.
However, if the sector grows at the current pace, we should brace ourselves for
a correction in late January. While we maintain Neutral on the sector, Woori
Investment & Securities (005940, Hold, TP: W17,000) remains as our sector
top pick as it is severely discounted compared to its profit and asset value.
Insurance (Overweight): As volatility increased in the financial market,
non-life insurance stocks fell off a cliff. As such, they are unlikely to slip further
even if rising auto-loss ratios slow their earnings growth. However, auto-loss
ratios may rise for the time being given seasonal factors and uncertainties will
likely mount with the planned construction and shipbuilding restructuring, and
lead to weaker investor sentiment. We do not believe investor sentiment will
improve before April. Our top pick is Dongbu Insurance (005830, BUY, TP:
W24,000).

December performance review ................................................................... 2
Banking (Neutral).......................................................................................... 4
Brokerages (Neutral) .................................................................................... 7
Insurance (Overweight)................................................................................ 9
Sector Outlook & Strategy

Valuation....................................................................................................... 13
Comparative Valuation.................................................................................. 19
Comparison of global bank share price indicators ........................................ 20
Share performance....................................................................................... 21
Comparison of banking share performance by nation .................................. 22
PBR.............................................................................................................. 23
RSI ............................................................................................................... 27
Free Floats ................................................................................................... 29
Net-buying trend (M)..................................................................................... 30
Financials (Banking/Card) ............................................................................ 32
Financials (Brokerage/Insurers).................................................................... 36
DuPont Analysis ........................................................................................... 38
NPL and Coverage ratio by bank.................................................................. 39
Key indicators of banks ................................................................................ 40
Key indicators of brokerages ........................................................................ 42
Key indicators of brokerages/insurers .......................................................... 43
Key indicators of insurers ............................................................................. 44
MACRO........................................................................................................ 45
Financial institution deposits and loans ........................................................ 46
Weighted average interest rates................................................................... 47