Securities Stocks Take Flight... Will They Keep Soaring Until Year-End?

[Asia Economy Reporter Minji Lee] As the KOSPI continues its rally to new highs, securities stocks listed on the domestic stock market are also rising day by day. This is interpreted as a recovery in investor sentiment amid expectations that securities firms' investment banking (IB) division profits could further increase due to the year-end high dividend appeal and the resumption of economic activities.

According to the Korea Exchange on the 3rd, the KRX Securities Industry Index rose about 17% over the past month, from 634.47 on the 2nd of last month to 743.14 the day before. Compared to the 3% rise in the securities industry index during the same period last year and in 2018, this marks a significant increase. Although securities trading was sluggish at year-end due to major shareholder capital gains tax and external factors, funds considering dividends flowed into securities stocks, showing a slight upward trend.

Adieu 2019. The Year of the Golden Pig was filled with numerous tumultuous and shocking events both domestically and internationally. The battleground of the Korean financial market, Yeouido's securities district in Seoul, is lighting up even in the darkness with hopes for the Year of the White Rat 2021.

Photo by Yoon Dong-joo doso7@

This year, with forecasts of a rising market until the end of the year, the increase in securities stocks appears to be larger than in previous years. The easing of major shareholder capital gains tax requirements and growing expectations for economic recovery following the development of COVID-19 vaccines led the KOSPI to rise about 16% in November alone. By stock, securities firms benefiting from booming trading volumes saw larger gains. Kiwoom Securities rose about 27% from the 2nd of last month to the present day. NH Investment & Securities (13%), Mirae Asset Daewoo (16%), Samsung Securities (26%), Hanwha Investment & Securities (21%), Meritz Securities (12%), and Daishin Securities (5%) also showed upward trends.

As securities firms are expected to post solid earnings in the second half of the year, stock prices are also anticipated to continue rising. In the third quarter, six securities firms?Mirae Asset Daewoo, Korea Financial Group, Kiwoom Securities, Samsung Securities, Meritz Securities, and NH Investment & Securities?recorded a combined net profit of 1.3784 trillion KRW, an increase of about 4% compared to the previous quarter. This was due to increased brokerage fees from higher stock trading and a significant rise in early redemptions of ELS (Equity-Linked Securities) amid favorable global stock markets.

The outlook for the fourth quarter is also positive. Although a contraction in trading volume was expected as the year-end approached, the average daily trading volume last month was 27.6 trillion KRW, up 31% from the previous month (21 trillion KRW). On the 25th of last month, trading volume reached 40 trillion KRW, setting a new record high. Early redemptions of ELS are also increasing significantly. While new issuances are not large, the redemption scale is growing as major countries' indices reach all-time highs.

With growing expectations for normalization of economic activities due to vaccine inoculation, there are also forecasts that the IB division's profit structure could improve significantly. Although quarterly impairment costs related to aircraft, tangible assets, and overseas commercial real estate surged due to the impact of COVID-19 this year, these costs may decrease as activities normalize. Baek Bae-seung, a researcher at eBest Investment & Securities, said, “The possibility of IB profit expansion and concerns related to investment assets will ease. With an overall increase in risk asset preference within the financial market, operating profits are also expected to be at a favorable level.”

Meanwhile, among securities firms this year, NH Investment & Securities is expected to record the highest dividend yield. While bank stocks are expected to post an overwhelming average dividend yield of 5.4%, NH Investment & Securities is forecasted to have a dividend yield of 5.3%. Other estimates include Korea Financial Group at 2.8%, Mirae Asset Daewoo at 2.7%, Samsung Securities at 4.2%, and Kiwoom Securities at 1.7%. Park Hye-jin, a researcher at Daishin Securities, explained, “Among securities firms, NH Investment & Securities is expected to achieve an unusually high dividend yield by increasing profits by nearly 30% compared to last year.”

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