In the first quarter of this year, securities firms posted record earnings and stock market trading value also surged, but securities stocks and related exchange-traded funds (ETFs) are instead falling sharply. While a flood of profit-taking after a short-term spike is a major factor, some say the rally stalled because of the industry's inherently high earnings volatility and limited value-up appeal. Still, experts said stock performance will increasingly diverge by firm depending on competitiveness in new businesses such as security token offerings (STOs) and investment banking (IB).
According to the Korea Exchange (KRX) on the 26th, the KODEX securities ETF, which consists of major domestic securities stocks, closed at 27,945 won on the 22nd. That was down 16.7% from the closing-price peak of 33,555 won on the 6th. During the same period, the TIGER securities ETF fell 16.5%, and the HANARO securities high-dividend TOP3 Plus ETF also dropped 16.2%, extending broad weakness across securities ETFs.
In the KOSPI correction phase, declines in securities ETFs were steeper. The KOSPI index climbed to 7,981.41 at the close on the 14th, then fell to the 7,200 level on the 20th, down about 10%, but securities ETFs dropped more than 16% from early-month highs, taking a larger hit.
The industry index also tumbled. The KOSPI securities industry index fell 12.6% from 9,232.12 on the 11th to 7,914.19 on this day. It gave back more than half of the 17.6% jump it notched over a short span earlier this month (the 4th–8th), marking the second-largest decline among all sectors over the past two weeks after machinery and equipment. Securities stocks climbed quickly alongside the recent semiconductor and KOSPI rally, but volatility has been greater in the correction phase.
By contrast, earnings and business conditions themselves are solid. According to the financial investment industry, combined first-quarter net income for the 10 leading domestic securities firms (Mirae, Korea, Kiwoom, NH, Samsung, KB, Shinhan, Meritz, Daishin, and Hana Securities) reached the 4 trillion won range, the highest on record. As increased stock market trading value, expanded margin financing, and improved trading gains were reflected at the same time, most securities firms posted results that beat market expectations.
However, the market view is that earnings expectations are already largely priced in. In fact, the three securities ETFs have surged about 80% since the start of the year, rising to a level similar to the KOSPI's gain (85.5%) over the same period. In other words, profit-taking is emerging after a short-term spike.
There is also analysis that recently, stability and sustainability of shareholder returns have begun to matter more than simple earnings. Some securities firms are canceling treasury shares and boosting dividends, but given the industry's high earnings volatility depending on transaction value and stock market direction, there are limits to being perceived as a stable value-up sector like banks. Ultimately, because shareholder return policies alone have limits in steadily lifting share prices, whether new revenue sources such as security token offerings (STOs) or investment banking (IB) can be expanded is cited as a key variable for differentiating securities stocks going forward.
Jeong Tae-jun, an analyst at Mirae Asset Securities, said, "To benefit from the recent trend of a higher share of investment assets in household assets, firms need to supply customers with a wide range of investment products and tools," and added, "It is necessary to expand entry into non-securities areas and diversify the customer base portfolio by supplying a variety of domestic market products to overseas investors who maintain a high share of investment assets."
That said, structural risks in the securities sector remain a burden. Recently, securities firms have been expanding investment banking and alternative investment businesses based on short-term notes and integrated managed accounts (IMA), but competition to secure quality investment opportunities has intensified as market participants have surged. In particular, as firms need to increase exposure to venture capital such as mezzanine and KOSDAQ venture funds, there are concerns that liquidity risk could emerge given the industry's nature of investing short-term funding into long-duration assets.
Seol Yong-jin, an analyst at iM Securities, said, "In the past, the structure was to secure revenue by selling down investment assets and focusing on fees, but recently the share of securities firms directly holding assets and taking both profits and losses has grown," and added, "While expanding the short-term notes business is positive for growth in the securities industry, going forward, risk management capabilities rather than simple transaction value will determine earnings and share prices."