Korean brokerage firms to enjoy improved Q1 earnings on strong Kosdaq market

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South Korean securities firms are expected to post improved first-quarter earnings on the back of the bull secondary Kosdaq market and decline in bond yields.

According to financial market tracker FnGuide Inc. on Monday, the combined operating profit of Korea‘s five major securities firms for the first quarter is estimated at 1.11 trillion won ($838.58 million), nearly fivefold the fourth-quarter earnings. The five firms are Mirae Asset Securities Co., NH Investment & Securities Co., Korea Investment Holdings Co., Samsung Securities Co., and Kiwoom Securities Co.

The combined net income for the five firms is estimated at 867.4 billion won for the first quarter, more than doubled from the previous quarter’s 374.1 billion won.

Samsung Securities is likely to report an operating profit of 239.5 billion won, up nine times from the previous quarter, and Mirae Asset Securities 191.5 billion won, up from 79.9 billion during the same period.

The operating profit of Korea Investment Holdings will likely swing to the black in the first quarter at 256.2 billion won.

The rosy outlook comes amid the surge in Kosdaq trading volume.

According to the Korea Exchange, the average daily trading volume stood at 17.6 trillion won in the first quarter, up 35.3 percent from the previous quarter. The daily trading volume in Kosdaq, in particular, came to 9.6 trillion won, surpassing that of the Kospi market at 8 trillion won.

[Courtesy of Korea Exchange]

Expectations about an end to the monetary tightening this year have also encouraged investors to move their funds from deposits to riskier assets.

Trading volume has shot up as tech stocks gained momentum, including battery materials stocks EcoPro BM Co. and EcoPro Co.

“As individual investors flocked to the stock markets in the first quarter, earnings of securities firms are expected to rise about 20 percent,” said Chung Min-ki, an analyst at Samsung Securities.

Bond yields have plummeted sharply in the first quarter, leading to a rise in bond prices.

Securities firms also saw performance on corporate financing improve in the first quarter. Their debt capital market (DCM) profit increased on the back of a series of corporate bond issuance early this year, and more initial public offerings of small and medium-sized stocks.

Brokerage stocks, in the meantime, have also surged amid expectations about improved first-quarter earnings.

Shares of 23 securities stocks rose by an average of 12.3 percent since the beginning of this year as of Monday. Shares of Daol Investment & Securities Co. jumped 94.7 percent and Kiwoom Securities 29.4 percent.

There are market insiders, however, that say that it is too early to assume that the stock market is on its way for recovery.

“We should keep an eye on the continuing uncertainty surrounding project financing activities until the end of the first half,” said Park Hye-jin, a researcher at Daishin Securities Co. “The trend of high trading volume during the first quarter could be temporary as it was led by the popularity of specific tech stocks,” said Chung from Samsung Securities.