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| Korea's financial district of Yeouido / gettyimagesbank |
By Lee Min-hyung
Major securities firms here are forecast to enjoy hefty earnings growth in the first half, as their brokerage commission will improve by a huge margin due to a surprising rally of the country's secondary Kosdaq market.
Few had expected the Kosdaq to become a savior for brokerage houses. This was propelled by the robust stock growth of large-cap Kosdaq-listed battery stocks ― represented by EcoPro BM. Kosdaq's market capitalization jumped by more than 30 percent between the end of 2022 and April 21.
This is an unexpected twist for most securities firms that suffered a serious earnings fall last year when major asset prices entered a period of adjustment.
According to data from stock tracker, FnGuide, a combined operating profit forecast of Korea's five securities firms, including Mirae Asset Securities, NH Investment & Securities and Samsung Securities, reached 1.1 trillion won ($826 million) between January and March. This is a fivefold jump in growth from a quarter earlier.
Other mid-tier securities firms are also widely expected to see their earnings improve in the first quarter due to overall stock market growth. Data from the Korea Exchange also showed that more investors jumped into the local stock markets. The daily average transaction volume in the main bourse KOSPI and Kosdaq came in at 17.6 trillion won during the same period, up 35.3 percent from a quarter earlier. The Kosdaq accounted for more than half of the figure with 9.6 trillion won.
A shift in the global macroeconomic environment helped more investors regain their confidence in the Korean stock markets. After the U.S. Fed and the Bank of Korea deployed aggressive monetary tightening throughout 2022, both monetary authorities are now providing hints that they will end their rate hike cycle in the near future.
Other data also showed that more investors engaged in leveraged stock investment here by taking out credit loans from securities firms. According to data from the Korea Financial Investment Association, retail investors took out credit loans worth more than 20 trillion won from brokerage houses as of April 19. This was the first time in almost 10 months since June 20 last year that the figure topped the 20-trillion won mark. Amid the rapid rise of leveraged investments, Korea Investment & Securities even suspended sales of certain products from April 21.
Despite the rosy market outlook, analysts said it appears premature to say that brokerage firms are on course for a stable earnings turnaround.
"The earnings forecast for securities firms will exceed expectations from the market in the first quarter on improved macroeconomic circumstances, but it is still too early to say that this is a sign of any earnings turnarounds," Jung Min-ki, an analyst at Samsung Securities, said. "This is because the growth has been driven by stock trading commission that comes with inherent volatility. On top of that, a recovery in profitability of their investment banking business may be delayed amid the prolonged real estate doldrums."
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