In the Stock Market Cold Wave... Securities Firms' 3Q 'Earnings Shock' vs 'Not as Bad as Expected'

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] Domestic stock markets are freezing up, causing damage to securities firms. As the stock market struggles to recover from the slump, the number of investors leaving the market is also increasing. However, opinions in the securities industry regarding third-quarter earnings are divided between 'earnings shock' and 'limited further deterioration.'

According to the Korea Exchange on the 19th, the KOSPI closed at 2249.95, up 1.36% (30.24 points) from the previous trading day. Although the index continued its upward trend following the previous day, it is still about 25% lower compared to the beginning of this year when it was approaching the 3000 mark. Since the third quarter began, the domestic stock market has been hit hard by persistent inflation and the Federal Reserve's consecutive interest rate hikes, resulting in a downward trend.

As the stock market slump prolongs, the securities industry is also struggling. This is due to the so-called 'reverse money move' phenomenon, where investors are withdrawing from stocks amid poor market conditions. According to the Korea Exchange, individual investors have sold stocks worth 657.8 billion KRW in the KOSPI market since the beginning of this month. With the benchmark interest rate continuously rising, it appears that individual funds are moving to relatively safer assets such as deposits or bonds.

The securities industry has experienced deteriorating performance across brokerage and investment banking (IB) sectors this year. The base effect from last year's stock market boom has further highlighted this poor performance. The KOSPI securities industry index, composed of securities stocks, fell about 30% from 2095.58 on the first trading day of the year to 1476.07 on the 17th. During the same period, the KRX securities index also retreated by nearly 32%. Looking at individual stocks, all securities firms' shares declined. Hanwha Investment & Securities dropped 61.03%, Hanyang Securities -42.23%, Yuanta Securities -37.19%, and SK Securities -34.70%, among others, showing significant declines.

Due to the central bank's ongoing interest rate hikes and the possibility of further stock market declines, the securities industry is expected to continue experiencing an earnings shock in the third quarter, according to market analysts. Seunggeon Kang, a researcher at KB Securities, forecasted underperformance of the securities sector relative to the KOSPI, stating, "Due to increased volatility in interest rates and the stock market since mid-September, third-quarter earnings are expected to fall 40.1% below consensus." Taejun Jung, a researcher at Yuanta Securities, also said, "Contrary to expectations, the securities industry is expected to show worse performance in the third quarter than in the first half of the year," adding, "Not only this third quarter but also next year, profit resilience is expected to weaken."

However, there is also a view that the decline in securities industry earnings seen this year may somewhat stabilize, as the market has already fallen as much as it can. Hongjae Lee, a researcher at Hyundai Motor Securities, said, "The stock market is approaching the bottom, and stock prices have been excessively falling relative to the KOSPI for a long time, so the excessive decline is expected to ease somewhat after September," adding, "It is judged that maintaining a neutral weighting rather than further reducing it is appropriate." Hyejin Park, a researcher at Daishin Securities, also forecasted, "Although interest rates rose sharply in September, the operating environment in July and August was not bad," and "Except for some companies that reflected significant mark-to-market gains in the second quarter, third-quarter net profits are expected to increase compared to the second quarter."

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