The securities industry is facing a challenging third quarter due to increased market volatility, a sharp decline in trading volumes, and poor performance in investment banking (IB). Analysts are significantly lowering profit estimates for major securities firms and recommending a cautious approach until uncertainties are resolved.
On September 21, Shinhan Investment Corp released a report predicting a continued unfavorable operating environment for the securities sector, leading to downward revisions in profit consensus. Among the firms, Mirae Asset Securities saw the largest cut at 26%, followed by Korea Financial Group at 17%, NH Investment & Securities at 15%, Samsung Securities at 15%, and Kiwoom Securities at 14%.
The primary reason for the lowered target prices is the deterioration of market liquidity. The KOSPI index has dropped 21.11% from the previous quarter, hovering around the 6,900 mark. Daily trading volumes, which reached 138 trillion won in June, fell to 100 trillion won in July, 67 trillion won in August, and plummeted to about 56 trillion won in September. Consequently, the average daily trading volume for the third quarter is expected to be 77 trillion won, a 34% decrease compared to the previous quarter. Additionally, customer deposits have decreased by 18% to 100 trillion won, and credit balances have dropped by 11% to 33 trillion won, indicating a significant shift of funds from the stock market to bank deposits.
The drought in IB and trading performance is also expected to persist. As of August, corporate bond repayments have been recorded for nine consecutive months, and the number of companies going public from January to September has decreased by 35% to 43, with the total amount raised falling by 53% to 1.6 trillion won compared to the same period last year. The rapid rise in interest rates has led to poor bond management performance and increased risks of asset valuation losses for securities firms.
Each securities firm faces its own set of challenges. Analysts Im Hee-yeon and Lee Ji-yeon from Shinhan Investment Corp estimate that Mirae Asset Securities may incur valuation losses of about 440 billion won related to SpaceX. They noted that Korea Financial Group is expected to reflect valuation losses on its affiliate's assets but plans to secure up to 500 billion won through the selection of a preferred bidder for KDB Life and a bond issuance in October. They added that Samsung Securities has limited sensitivity to rising interest rates due to its relatively small bond portfolio, while Kiwoom Securities is expected to benefit from fees generated through its lending and swap operations.
Furthermore, Im and Lee stated, "Given the unfavorable operating environment expected to impact all business divisions, a downward revision of profit consensus for securities firms is inevitable. Despite high dividend yields, a cautious approach to securities stocks remains valid until uncertainties in performance are resolved."
* This article has been translated by AI.
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