The Late 'Cold Wave' Hitting the Securities Industry

Stock Market Wobbles with Declining Trading Volume
Commission Revenue Drops Amid Interest Rate Hike Impact

On the 17th, the electronic board in the dealing room of Hana Bank in Euljiro, Seoul, displayed the KOSPI, the won-dollar exchange rate, and the KOSDAQ. The U.S. Federal Reserve raised the benchmark interest rate by 0.25 percentage points for the first time in 3 years and 3 months. Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] As the stock market falters, a belated 'cold wave forecast' has emerged for the securities industry's earnings outlook.

According to the Korea Exchange on the 22nd, the KRX Securities Industry Index recorded 736.43, down 5.87% from the end of last year as of the previous day. Trading volume decreased by 50.35%, from 11.83 million shares to 5.96 million shares, and trading value also dropped from 100 billion KRW to 62 billion KRW. Although the top securities firms as of the end of last year (Mirae Asset Securities, NH Investment & Securities, Samsung Securities, Korea Investment & Securities, Kiwoom Securities) all joined the 1 trillion KRW operating profit club, marking record-high earnings, investor sentiment toward the securities industry has weakened.

The biggest threat was the increased volatility in the stock market, with the KOSPI falling from 2,977.65 at the end of last year to 2,686.05 as of the previous day. As volatility expanded and trading decreased, the securities industry's earnings outlook, which had achieved record profits through commission income, has triggered warning signals. The average daily trading value of the entire market, combining KOSPI and KOSDAQ, in the first quarter of this year was 19.7 trillion KRW, down about 41% compared to the previous year. In the first quarter of last year, it recorded a record high of 33.3 trillion KRW. Overseas stock trading value, which had offset the decline in domestic stock trading value, also recorded 79.1 billion USD, down 27.7% compared to the fourth quarter of last year from the beginning of this year to the present.

Concerns over losses in equity-linked securities (ELS) due to the weakness of the Hang Seng China Enterprises Index, composed of mainland Chinese companies listed on the Hong Kong Stock Exchange, have also compounded. The total issuance amount of ELS by five companies reaches about 16 trillion KRW. Among these, the self-managed scale is about 9.7 trillion KRW. Externally, with the start of the US interest rate hikes and hawkish opinions emerging, the preference for safe assets is expanding, making it difficult for investor sentiment toward the securities industry to recover anytime soon.

The securities industry expects that the earnings growth trend within the sector, which has continued since 2016, will come to an end in the first quarter of this year. Mirae Asset Securities forecasted that the net profit of the top five securities firms in the first quarter of this year will decrease by 27.4% compared to the previous quarter. Daishin Securities also predicted that the net profit of the top securities firms in the first quarter will be 999.3 billion KRW, about 11% below market expectations.

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