Securities Sector Surged in First Half... Outlook for Second Half Uncertain

KOSPI Securities Index Down 17.02% From Peak
Disappointment Over Tax Reform Proposal
"Lack of Additional Momentum... Long-Term Perspective Needed"

In the first half of this year, securities firms' stock prices saw significant gains, driven by policy expectations and strong earnings. However, the outlook for the second half of the year is less optimistic. Analysts point to disappointment over the government's tax reform plan, as well as a lack of momentum to drive further increases.

This year, the domestic stock market is regarded as having performed well, contrary to the securities industry's forecast of a "weak start and strong finish." The KOSPI, which had fallen to the 2270 level amid various volatilities, closed at the 2650 level on the last day. The KOSDAQ also recovered to the 860 level. Attention is focused on whether the upward rally can continue next year. At the end of the year, the high-rise buildings in Yeouido's financial district shine brightly, promising a hopeful outlook for the coming year. Photo by Kim Hyunmin kimhyun81@

According to the Korea Exchange on August 18, the KOSPI Securities Index stood at 3,618.46 as of August 14. This represents a 72.58% increase compared to the end of last year. The stock prices of major securities firms also soared. Mirae Asset Securities surged 134.25% compared to the end of last year. Korea Financial Group (92.85%), Kiwoom Securities (81.15%), Samsung Securities (58.16%), Daishin Securities (56.81%), and NH Investment & Securities (38.64%) also posted sharp increases.

The improvement in securities firms' stock prices is attributed to both better earnings and policy expectations from the government. According to Daishin Securities, the combined second-quarter net profit of the five covered companies-Kiwoom Securities, Mirae Asset Securities, Korea Financial Group, Samsung Securities, and NH Investment & Securities-reached 1.7434 trillion won, exceeding the consensus by 31.4%.

The increase in trading volume, driven by policy expectations, led to improved earnings for securities firms. President Lee Jaemyung had set a "KOSPI 5000" target since his candidacy. On the back of these expectations, the KOSPI rose 34.43% compared to the end of last year. Trading volume also increased. In the second quarter of this year, the average daily trading volume was 23.6 trillion won, a 12.6% surge compared to the same period last year.

However, as the government's tax reform plan failed to meet market expectations, the securities industry has recently undergone a correction. The KOSPI Securities Index hit its peak for the year at 4,360.64 during trading on July 15.

The announcement to tighten the criteria for major shareholders subject to capital gains tax from 5 billion won to 1 billion won, along with the decision to set the highest tax rate for separate taxation of dividend income at a higher-than-expected level, poured cold water on the stock market. While there is a possibility that the capital gains tax may revert to its previous criteria, it was not enough to reverse the downward trend once it had started.

Jung Taejun, a researcher at Mirae Asset Securities, explained, "Recently, the securities industry experienced a sharp decline in stock prices due to disappointment over the tax reform plan. This reflects not only concerns about a market downturn, but also reduced expectations for further expansion of shareholder returns."

As a result, there are forecasts that the second half of the year should be approached with a conservative perspective. Park Hyejin, a researcher at Daishin Securities, commented, "Driven by policy expectations and strong earnings, securities stocks soared by nearly 100% since April. However, with policy momentum now gone and record-high earnings already achieved in the first half, it will be difficult to surpass these results in the second half."

The securities industry advises focusing on companies with new growth drivers or a history of dividend payments. Park Hyejin noted, "The securities industry should focus on structural improvement rather than short-term momentum, and a long-term perspective is needed. Structural improvement ultimately lies in discovering new sources of revenue, which, in the securities sector, can be seen as new licenses."

Jung Taejun added, "The importance of a history of dividend payments will become even more pronounced due to the announcement of a tax reform plan that falls short of market expectations. Since the securities industry generally lacks communication about shareholder return policies compared to banks, past dividend records are likely to serve as a key basis for evaluation."

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