Era of 100 Trillion Won Trading, but Why You Can't Buy Brokerage Stocks Indiscriminately

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Trading Value Gains Already Priced In During Q1
Product Operating Income Key for Q2...Careful Selection of Brokerage Stocks Needed

Yonhap News Agency

The era has arrived in the domestic stock market where daily trading volume frequently exceeds 100 trillion won. Since brokerages earn commission income with every stock trade, their performance could improve significantly. However, the time for indiscriminate investment has already passed. In the second quarter, increased interest rate volatility is expected to make earnings from product operations a key variable. Because both stock prices and earnings are likely to peak in the first half and decline in the second half, analysts say that selective investment is necessary.

According to the Korea Exchange on June 3, as of the end of last month, the average daily trading volume for the second quarter was about 85.1 trillion won. This is an increase of 21.4% compared to the first quarter average of 70 trillion won. As the semiconductor "super cycle" continues, the National Pension Service temporarily raised its stock allocation limit. As a result, on May 29, trading volume exceeded 141 trillion won, and the number of days surpassing 100 trillion won has increased. Concerns that trading volume in the stock market would peak and then decline have been alleviated.

If this trend continues, the combined second-quarter brokerage commission income of five firms—Kiwoom Securities, Korea Investment & Securities, NH Investment & Securities, Mirae Asset Securities, and Samsung Securities—is expected to reach about 2.6 trillion won, up 24.3% from the previous quarter.

The brokerage market share among securities firms is also changing. As the index continues to rise centered on large-cap stocks, the market share of large firms with offline branches is increasing. In particular, Korea Investment & Securities saw its market share rise from 9.3% in 2021 to 12.2% at the end of last year, marking the largest increase. Analysts say the decline in Kiwoom Securities' market share, which previously held the top spot, is ultimately due to the rise of large firms. Hyejin Park, a researcher at Daishin Securities, explained, "Until the end of last year, the increase in large firms' market share had a greater impact on the decline in Kiwoom Securities' share than the growth of Toss Securities," and "in terms of commission income, Mirae Asset remains the undisputed leader, with KB Securities and NH Investment & Securities holding the second and third spots by a narrow margin."

While large securities firms are enjoying increased commission income, it is uncertain whether this will continue into the second quarter. Growing interest rate volatility in product operations could become a significant variable. Following the sharp increase in March, bond yields have shown a steep upward trend with repeated surges and drops since April, making it difficult for securities firms to achieve strong bond trading profits. Even in the first quarter, many securities firms posted losses in March despite good results in January and February. In the second quarter, as volatility has increased since April, related earnings improvement is expected to be challenging.

In addition, the impact of dividends is another key factor. Securities firms with large investment assets may see inflows of distribution income from fund or investment partnership recoveries. Mirae Asset Securities is expected to reflect a significant capital gain from the listing of SpaceX. This is why analysts say second-quarter earnings will ultimately depend on product operation income.

Securities stocks, which surged sharply early this year, have struggled over the past three months. Kiwoom Securities, which saw the steepest decline, has dropped over 20% in the last three months. This contrasts sharply with the KOSPI index, which is enjoying a historic rally. Except for Samsung Securities, companies like Mirae Asset Securities and Korea Financial Group have also underperformed the index's growth rate.

Researcher Park emphasizes the need to select stocks with potential for price appreciation even among underperforming securities stocks. He explained, "Usually, securities firms' performance follows a pattern of peaking in the first half and declining in the second half, and stock prices tend to reflect this in advance. It appears that all of this year's earnings were priced in during the first quarter," adding, "Korea Financial Group and NH Investment & Securities have seen their price-to-book ratios (PBR) fall to 1, indicating they are undervalued."

This content was produced with the assistance of AI translation services.