Weak Stock Market, What About Securities Stocks' Earnings?

Continued Decline in Trading Volume in February and March... Inevitable Profit Decrease in Q2

[Asia Economy Reporter Song Hwajeong] As the stock market correction continues, dark clouds are gathering over the earnings of securities firms that have maintained strong performance due to increased trading volume. While the first quarter is expected to show solid results, a decline in profits is inevitable in the second quarter.

According to financial information provider FnGuide on the 6th, the first-quarter net profit forecast for the KOSPI securities sector is estimated at 962.9 billion KRW, a 262.31% increase compared to the same period last year. This figure has been revised upward by 4.52% compared to a month ago. Jeong Taejun, a researcher at Yuanta Securities, analyzed, "Despite concerns over rising interest rates in the first quarter, some companies are expected to post record quarterly earnings. It is presumed that large profits were generated in retail and trading when trading volume and the stock market surged at the beginning of the year, and the decline in operating profit due to the interest rate hike in March was somewhat offset by dividend income." He also noted that while the previous quarter reflected valuation losses and impairment losses in trading and product profits and non-operating expenses, no special losses are expected to be reflected in the first quarter, so a strong base effect compared to the previous quarter is anticipated.

Although strong earnings are expected in the first quarter, monthly fluctuations were clearly observed. The stock market and trading volume reached historic highs at the beginning of the year, resulting in strong performance in January, but profits decreased in February and March due to a decline in trading volume accompanied by rising interest rates. The average daily trading volume, which recorded 27.6 trillion KRW in the fourth quarter of last year, rose to 42.1 trillion KRW in January but fell to 32.4 trillion KRW in February and 26.2 trillion KRW in March.

The problem starts from the second quarter. The decline in trading volume seen in February and March is expected to continue, and the interest rate hike trend is unlikely to reverse, creating an unfavorable environment for securities stocks. In particular, since the stock market crash in March last year, real estate project financing (PF) and equity-linked securities (ELS) self-hedging have been reduced, increasing the contribution of brokerage profits compared to the pre-COVID-19 period. Researcher Jeong said, "Additional profit growth is possible only if trading volume increases, the stock market rises, and interest rates fall continuously, which requires further liquidity expansion. However, with rising inflationary pressures, the possibility of further interest rate cuts is limited, so profits are expected to decline from the second quarter onward."

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