Securities and Asset Management Firms Say "Thank You Donghak Ants"

Individual Buying Overcomes COVID-19 Setbacks
Record High Q2 Earnings This Year
Brokerage Industry Net Profit Triples from Q1
Abundant Liquidity...Strong Momentum Continues

[Asia Economy Reporter Park Ji-hwan] In the second quarter of this year, securities firms and asset management companies recorded their highest-ever earnings. The record-breaking buying spree by individual investors, known as the 'Donghak Ant Movement,' lifted the domestic stock market, which had plummeted due to the COVID-19 pandemic, significantly improving profitability indicators in these industries.

According to the 'Q2 Domestic Asset Management Company Performance (Preliminary)' released by the Financial Supervisory Service on the 10th, the net profit of 309 asset management companies was 317.1 billion KRW. This is an increase of 199.4 billion KRW (169.4%) compared to 117.7 billion KRW in the first quarter, which was heavily affected by COVID-19. Compared to 212.9 billion KRW in the same period last year, it increased by 104.2 billion KRW (48.9%), marking the highest quarterly net profit ever recorded.

The sharp increase in net profit is largely attributed to the significant rise in securities investment gains from proprietary asset management by asset management companies. In the second quarter, securities investment gains by asset management companies amounted to 94.3 billion KRW, an increase of 212.2 billion KRW (180%) compared to the first quarter's negative 117.9 billion KRW. Since April, as COVID-19 somewhat subsided, fund net assets increased, and the rise in fund NAV led to higher management fees, improving performance. A Financial Supervisory Service official explained, "As the stock market, which had rapidly deteriorated due to COVID-19, recovered, the assets under management in the asset management industry increased, and profits also rose."

Due to COVID-19, the stock market sharply declined in the first quarter but showed signs of recovery in the second quarter. The KOSPI index fell from 2,197.67 at the end of last year to 1,754.64 at the end of March this year, then sharply rebounded to 2,108.33 by the end of June. Individual investors led this index rise. In the second quarter, individuals net purchased 11.4103 trillion KRW worth of stocks in the KOSPI market, driving the index upward. Meanwhile, foreigners and institutions net sold 9.2027 trillion KRW and 2.9126 trillion KRW, respectively, during this period.

The securities industry also greatly benefited from the Donghak Ant Movement. The securities industry's net profit in the second quarter more than tripled compared to the previous quarter, quickly recovering from the poor performance in the first quarter. The net profit of 56 securities firms in the second quarter surged 248.5% from the previous quarter to 1.8173 trillion KRW. This is also the highest quarterly figure ever recorded. Net profit, which was 1.0577 trillion KRW in the fourth quarter of last year, was halved to 521.5 billion KRW in the first quarter due to the COVID-19 impact but successfully rebounded. The rebound in securities firms' performance, which had a dismal first quarter, was decisively influenced by individuals.

In the securities industry, fees from the corporate finance (IB) sector, which had rapidly emerged as a major revenue source before COVID-19, decreased by 2.9% to 877.9 billion KRW in the second quarter compared to the previous quarter. However, total fee income increased by 8.8% (262.5 billion KRW) to 3.2378 trillion KRW from the previous quarter. Among these, custody fees from stock trading surged 26% from the previous quarter to 1.7386 trillion KRW amid the Donghak Ant fever. The proportion of custody fees in total fee income rose by 7.3% from the first quarter to 53.7%, exceeding half. Additionally, the decline in interest rates contributed as the evaluation and disposal gains on held bonds increased by 610.6 billion KRW compared to the previous quarter.

Industry insiders expect the strong performance trend in these sectors to continue for some time due to the massive liquidity effect currently seen in the market. A financial investment industry official said, "Although uncertainties remain due to the resurgence of COVID-19, the liquidity effect, supported by ultra-low interest rates and government policies, is expected to continue attracting funds to the stock market for the time being."

The Financial Supervisory Service plans to continuously monitor the real estate finance status of the securities industry, including project financing (PF) loans and debt guarantees, and to check the financial and profit and loss status of asset management companies with weak revenue bases. The Financial Supervisory Service stated, "Although securities firms and asset management companies posted favorable earnings in the second quarter due to stock market stabilization, uncertainties such as the impact of COVID-19 and stock market volatility still remain domestically and internationally," adding, "We will closely monitor potential internal and external risk factors."

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