"Currency and Earnings Disappointments Weigh on Stock Market... Flood of Sell Recommendations for Securities Stocks"

[Asia Economy Reporter Lee Seon-ae] Sell recommendations for the securities sector are pouring in. Amid the turmoil in the financial market caused by the sharp rise in the won-dollar exchange rate, the prolonged strong dollar outlook is accelerating the stock market downturn due to foreign investor outflows and companies entering a reverse earnings market with declining profits, leading to a dominant analysis that there is almost no room for a rebound in the stock prices and business conditions of the securities sector.

According to the Korea Exchange on the 7th, securities stocks showed a broad decline in early trading. The won-dollar exchange rate surpassed 1,380 won for the first time in 13 years and 5 months, directly impacting the market index's poor performance. The exchange rate exceeding 1,380 won is the first time since April 1, 2009 (high of 1,392.0 won), during the financial crisis, 13 years and 5 months ago. As of 9:28 a.m., Mirae Asset Securities (-1.38%), Samsung Securities (-1.18%), Korea Financial Group (-1.611%), NH Investment & Securities (-1.02%), Meritz Securities (-1.42%), and Kiwoom Securities (-1.83%) all showed declines of more than 1%.

The securities industry viewed investment in the sector conservatively. Hyundai Motor Securities issued a 'neutral' investment opinion. Neutral essentially means sell. Lee Hong-jae, a researcher at Hyundai Motor Securities, said, "The stock prices and business conditions of the securities sector have stabilized recently after volatility expanded significantly in June, but no trend reversal is expected," adding, "Momentum for each company is limited, so overall stock prices will likely follow the index trend," indicating no room for a rebound.

Immediate indicators for August were also weak. The average daily stock trading volume in July and August decreased by 19.9% compared to the previous year. Investor deposits in August fell by 2.2% compared to the previous month. The researcher explained, "This can also be interpreted as a factor of rising time deposit interest rates, and accordingly, brokerage slowdown in the securities industry is likely to continue in the medium term." Regarding the bond market, although third-quarter earnings are expected to improve compared to the second quarter due to reduced trading evaluation losses, it is difficult to consider this a meaningful change in business conditions given the continued hawkish stance, slowdown in the IB (investment banking) sector growth, and recognition of losses on held assets.

Moreover, the sector does not have relatively strong appeal within the financial industry. Although earnings are expected to increase next year due to the low base effect from this year's poor performance, the sharp rise in market interest rates has raised expectations for financial performance after next year not only for non-life insurance but also for life insurance. Despite an absolutely low average price-to-book ratio (PBR) of 0.4 times and price-to-earnings ratio (PER) of 5 times, these are higher compared to banks.

He emphasized, "Considering that the securities sector's stock prices have been excessively falling for a long time and business conditions are nearing the bottom, it is not a time to further reduce weight, but until a clear directional change in tightening, which mainly determines business conditions, is confirmed, I do not recommend a position above neutral."

KB Securities also issued a neutral rating, citing continued deterioration in the operating environment of the securities sector and weakening momentum. The worsening factors include the U.S. Federal Reserve's reaffirmation of its intention to raise benchmark interest rates, increased stock market volatility, and deteriorating supply-demand conditions for foreign investors due to the sharp rise in the exchange rate. Accordingly, when checking brokerage indicators, the third quarter is expected to worsen compared to the second quarter.

KB Securities researcher Kang Seung-geon said, "The securities sector fell 3.29% in August, underperforming the KOSPI (0.02%)," adding, "This reflects not only the impact of decreased trading volume but also concerns about the slowdown in IB sector growth due to contraction in real estate finance and increased volatility in valuation gains and losses of real estate and non-marketable assets." He continued, "Considering the remaining uncertainties, we maintain the lowest preference ranking within the financial sector."

Meanwhile, the National Pension Service (NPS), a major player in the stock market, reducing its holdings in securities stocks is also a factor worsening investment sentiment toward the securities sector. It is interpreted that the NPS reduced its weight anticipating poor performance of securities companies. The NPS sold shares of Korea Financial Group in June and August, reducing its stake to 9.08%. The NPS's shareholding ratios in BNK Financial Group and Kiwoom Securities also decreased to 9.95% and 9.85%, respectively. The shareholding ratios in Samsung Securities and Meritz Securities also fell by more than 1% each.

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