Many Brokerage Stocks Have Halved from Their Peaks... What Happened to the Once-Hot Sector?

Trading Value Plunges, High Interest Rates Add to Concerns... Brokerage Stocks Tumble
Brokerage Firms' Third-Quarter Net Profit Forecast to Plunge 34% Year on Year

Brokerage stocks, which had been seen as the biggest beneficiaries of the KOSPI breaking above 9,000 in the first half of the year, have suffered a steeper decline since the second half began. The KOSPI correction has sharply reduced trading value on the stock market, fueling concerns about weak earnings. The prolonged high-interest-rate environment has also increased uncertainty about the outlook.

Trading Value Plunges, High Interest Rates Add to Concerns... Brokerage Stocks Tumble

According to the Korea Exchange on October 13, the KRX Securities Index closed at 1,631.81 the previous day, down about 25% since the start of the second half. Compared with its year-to-date high of 3,362.84, recorded on May 6, it has plunged 51%.

Mirae Asset Securities has seen the biggest share-price swings among the index's constituent stocks. Its shares, which were in the KRW 23,000 range at the start of the year, soared 280% to KRW 88,000 in May but have since fallen to the KRW 28,000 range. Expectations for its investment in SpaceX had driven its shares up more sharply than those of other securities firms. But after the stock market began correcting and SpaceX shares also fell, Mirae Asset Securities' shares declined even more steeply. Analysts expect the company to swing to a loss in the third quarter, citing valuation losses resulting from SpaceX's share-price decline and a fall in the won-dollar exchange rate.

Korea Investment Holdings' shares surged 86% at one point this year, from KRW 160,000 at the start of the year to just over KRW 300,000, but have since fallen back to the KRW 160,000 range. The company has effectively given back all of this year's gains. NH Investment & Securities also rose as much as 109% from the start of the year to its peak, but its gain has since narrowed to the mid-teens. Samsung Securities' gain has fallen from 128% to 11%.

Expectations for brokerage stocks are steadily fading, analysts say. In particular, they expect the decline in trading value amid the stock market correction to significantly reduce securities firms' earnings in the second half. Average daily trading value on the domestic stock market in the third quarter was about KRW 52 trillion, down 41.7% from the previous quarter. The balance of credit financing stood at KRW 34 trillion at the end of the third quarter, down 10.4% from the previous quarter. Investor deposits, which represent funds waiting to enter the stock market, also fell 14% to KRW 104 trillion at the end of the third quarter, from KRW 121 trillion at the end of the second quarter.

Brokerage Firms' Third-Quarter Net Profit Forecast to Plunge 34% Year on Year

In a report on October 6, Meritz Securities forecast that the five securities firms Mirae Asset Securities, Korea Investment Holdings, Samsung Securities, NH Investment & Securities, and Kiwoom Securities would post combined net profit of KRW 1.27 trillion in the third quarter, down 34.1% year on year. This would be an earnings shock, coming in 35% below consensus estimates.

"Brokerage earnings are expected to weaken as average daily trading value on the domestic stock market contracts. In addition, higher interest rates and increased stock market volatility will inevitably result in valuation losses on investment assets, so earnings are likely to fall short of expectations," said Jo Ahae, an analyst at Meritz Securities. "We estimate that fee income related to the investment banking (IB) division will decline 17.9% year on year in the third quarter," Jo added. "Net gains and losses from trading products and other income are also expected to fall 42.9% year on year, making an overall decline in earnings unavoidable."

Yoon Yudong, an analyst at NH Investment & Securities, also said, "Unfavorable operating conditions, including rising interest rates and declining trading value, are now being fully reflected in third-quarter earnings, and we expect earnings to be stronger in the first half of the year than in the second."

However, Yoon noted, "Although short-term earnings momentum has weakened, securities firms continue to work on expanding their businesses. It is positive that Samsung Securities and Meritz Securities received approval to issue promissory notes last month and are offering products with relatively high interest rates. This helps them stem the outflow of customer funds into bank deposits and savings accounts while focusing on attracting new demand."

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