Volatility in South Korea's stock market is widening to record levels. The market has repeatedly surged, led by large semiconductor and artificial intelligence (AI) stocks, before pulling back sharply. With turnover also expanding to record levels, brokerage shares that have failed to keep pace with the index are drawing renewed attention.

On June 10, the KOSPI ended down 366.11 points, or 4.52 percent, at 7,730.82. The index had rebounded sharply the previous day to regain the 8,000 level, but gave it up again a day later.

The domestic market has seen record volatility, repeating steep declines and sharp rebounds within a single day. On June 8, a circuit breaker and a sell-sidecar were triggered in the KOSPI market in turn, and on June 10 a sell-sidecar was triggered again in the afternoon.

Brokerage shares corrected ahead of the index. According to the Korea Exchange, over the past month Mirae Asset Securities fell 35.52 percent and Kiwoom Securities dropped 25.38 percent. Samsung Securities fell 17.01 percent, NH Investment & Securities lost 15.40 percent, and Korea Financial Group slid 13.91 percent.

Looking at performance since the start of the year, it is hard to say brokerage shares have fully turned lower. Mirae Asset Securities has risen 107.71 percent since the start of the year, while Samsung Securities is up 47.83 percent, NH Investment & Securities 43.19 percent, Korea Financial Group 38.79 percent and Kiwoom Securities 13.60 percent.

This is interpreted as profit-taking emerging in the recent volatile market after brokerage shares earlier reflected expectations for a booming market and rising turnover at the start of the year.

The KRX Securities Index fell 4.3 percent in May, underperforming the KOSPI return by 32.8 percentage points. Brokerage shares were relatively weak while the KOSPI rose sharply from April. With demand concentrated in semiconductors and AI, brokerage shares failed to keep up with the index's rise.

Even so, turnover indicators point to a supportive environment for the brokerage sector. Average daily turnover in the domestic stock market hit a record 106.2 trillion won in May. Through the end of May, average daily turnover for the domestic market in cumulative second-quarter terms was 85.1 trillion won, up 27.7 percent from the first quarter.

The launch of single-stock leveraged exchange-traded funds (ETFs) is also affecting turnover growth. After 16 single-stock leveraged and inverse ETFs based on Samsung Electronics and SK Hynix listed on May 27, average daily ETF turnover over the most recent three trading days rose to as high as 41 trillion won.

That is sharply higher than the average daily ETF turnover of 30.4 trillion won in May. Single-stock ETFs accounted for 23 percent of ETF trading.

Rising turnover can lead to improved brokerage income for securities firms. As trading in both domestic stocks and ETFs increases, an analysis says it could also have a positive impact not only on brokerage commissions but also on ETF liquidity provider (LP) income, wealth management (WM) fees and interest income from credit provision.

In the securities industry, major firms' second-quarter brokerage income is expected to rise from the first quarter. The market projected combined second-quarter brokerage fee income for five covered securities firms at about 2.6 trillion won, up 24.3 percent from the first quarter.

The problem is investment product operating income. Securities firms' results are not determined by turnover growth alone. As volatility in market interest rates has increased in the second quarter, bond operations are cited as a burden. If interest rates rise, valuation losses on bonds held by securities firms can grow.

Still, factors such as a strong stock market, expanded ETF trading and valuation gains on overseas investment assets are cited as partially offsetting weakness in bond operations. For large securities firms with sizable investment assets in particular, fund or investment partnership distributions and valuation gains from global companies listing can increase earnings volatility.

Brokerage shares typically fall first when stock markets wobble, and then later reflect earnings expectations when a bull market continues. In a phase like the recent period, when index levels are high but volatility has increased, experts say investors need to consider both the benefits from turnover and the ability to defend operating gains and losses.

The industry sees securities firms' earnings momentum as intact while stock market turnover stays at a high level. But with profit-taking after a sharp short-term rise and interest-rate burdens appearing at the same time, the pace of individual share price rebounds is likely to differ by stock.

Park Hye-jin (박혜진), an analyst at Daishin Securities, said, "With ample liquidity and interest in the stock market, industry conditions are positive, but share prices have a strong pre-reflection element." She added, "Ups and downs in second-quarter results ultimately depend on investment product operating income."