Securities Industry "Q3 Earnings Also Challenging"... Burden of Interest Rates and Exchange Rates

Interest Rates Rise Again in August... Impact on Product Profitability
Sharp Currency Surge... Deterioration of Foreign Investor Conditions
Poor Operating Environment Continues
"Securities Firms' Earnings Likely to Fall Short of Expectations"

As the COVID-19 pandemic prolonged in 2020, it was the "Donghak Ants" who supported the shaken stock market. This year, a new term, "Donghak Ant Movement," emerged amid the personal investor stock frenzy. It is a metaphor comparing domestic individual investors buying large amounts of Korean stocks against institutions and foreigners to the 1894 anti-foreign movement called the "Donghak Peasant Revolution." Since the KOSPI index surpassed 2000 in July 2007, it has been stuck in a range for 13 years and never approached the 3000 mark. On December 4, the KOSPI index exceeded 2700 for the first time in history, raising hopes that it will surpass 3000 next year. On the 11th, the Seoul Yeouido financial district was bustling late into the evening. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Hwang Yoon-joo] The securities industry's performance in the third quarter of this year is expected to fall short of expectations.

According to FnGuide on the 5th, the estimated operating profit of Mirae Asset Securities for the third quarter of this year was 246.5 billion KRW, down 37.94% compared to the same period last year. This figure is lower than the second quarter (321.3 billion KRW), which experienced an earnings shock. NH Investment & Securities (230.3 billion KRW, down 21.30%), Samsung Securities (209.5 billion KRW, down 42.22%), and Kiwoom Securities (221.7 billion KRW, down 30.92%) are in similar situations.

Despite improvements in the operating environment, the rise in interest rates and exchange rates have been a hindrance. It was expected that the pace of the US Federal Reserve's rate hikes would slow once inflation peaked, but with the confirmed tightening stance, downward pressure on the stock market increased.

Additionally, the KRW-USD exchange rate surpassed the psychological barrier of 1,350 KRW, with forecasts suggesting it could reach 1,400 KRW per dollar by the end of the year. A sharp rise in the exchange rate weakens foreign investor demand.

Accordingly, brokerage revenue is expected to show a weaker trend compared to the second quarter. The average daily trading volume in August was 14.3 trillion KRW, up 7.1% from the previous month but down 17.1% compared to the second quarter.

The product profit and loss indicators are even bleaker. Following Federal Reserve Chairman Jerome Powell's remarks at Jackson Hole, interest rates rose again last month, increasing the burden on trading and product profit and loss in the third quarter.

Early redemption of ELS last month amounted to 1.95 trillion KRW, a 226.0% increase compared to the previous month (600 billion KRW). This is considered a base effect from the weak July, but considering the absolute scale, the difficult situation continues.

Furthermore, concerns about the slowdown in growth in the investment banking (IB) sector due to contraction in real estate finance add to the burden. This is because the volatility of valuation gains and losses on real estate and non-marketable assets is expanding.

Kang Seung-kwon, a researcher at KB Securities, said, "Considering the base of large bond valuation losses in the second quarter, there is hope that profits may recover in the third quarter, but the level is likely to be lower. The impact of decreased commission trading-related profits is increasing, and product profit and loss due to rising interest rates is expected to shrink more than anticipated."

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