[DigitalToday reporter Oh Sang-yup] Brokerage stocks, seen as major beneficiaries of the stock market rise in the first half, have given back a large part of their gains. Trading value, investor deposits and credit provision all fell at the same time in July. Earnings sources beyond brokerage are expected to determine share price direction.

According to the Korea Exchange on Aug. 6, as of May 6, Mirae Asset Securities was up 239.96% from the start of the year, Samsung Securities 96.97%, NH Investment & Securities 80.52%, Korea Investment Holdings 76.67% and Kiwoom Securities 60.70%. But as of Aug. 6, the gains narrowed to 40.16% for Mirae Asset Securities, 32.86% for NH Investment & Securities, 25.69% for Samsung Securities and 23.64% for Korea Investment Holdings. Kiwoom Securities was down 3.65% from the start of the year.

A shift in momentum for brokerage stocks has been driven by demand concentrating in large semiconductor shares and extreme volatility in the domestic market. As of mid-July, the securities industry index fell 26.2% over the past three months. That trailed KOSPI returns by 43.4 percentage points over the same period. The brokerage sector has consistently underperformed the KOSPI since April.

Second-quarter results improved despite the share-price weakness. Korea Investment & Securities posted second-quarter operating profit of 1.21 trillion won, up 92.4% from a year earlier, and Samsung Securities also increased 119.0% to 675.8 billion won. Kiwoom Securities also rose 93.2% to 789.0 billion won.

The issue is the second half. According to the Korea Exchange, average daily trading value in July was 99.5 trillion won, down 27.6% from 137.5 trillion won in June. It fell below the second-quarter average of 118.1 trillion won. It still remained above 84.8 trillion won in the first quarter.

In particular, the influence of single-stock leveraged exchange-traded funds (ETFs), which helped lift trading value in the first half, could weaken. Single-stock leveraged ETF trading value in July totalled 261 trillion won, accounting for 36% of total ETF trading value.

But after a 30 million won cash basic deposit requirement took effect from the 31st of last month, the average turnover for the products fell to 52.5% from 160%. Trading value also dropped 73% on average, from 11.7 trillion won to 3.2 trillion won.

The market estimated that the regulations could cut total ETF trading value by about 25%, or about 8.5 trillion won on an average daily basis.

Funds around the stock market have also slowed. Investor deposits in July stood at 109.7 trillion won, down 15.5% from the previous month, and margin loan balances fell 8.4% to 34.5 trillion won. Credit provision balances were tallied at 54 trillion won, down 13.4% from the previous quarter, while customer deposits fell 14.4% from the previous month to 104 trillion won.

As a result, whether brokerage stocks are re-rated in the second half is increasingly likely to be determined by businesses outside brokerage.

Wealth management (WM) is a field with relatively high expectations. Seol Yong-jin (설용진), an analyst at iM Securities, forecast that WM fee profit and loss at the five major brokerages would rise 127% from a year earlier. He cited that the balance of beneficial certificates at asset management firms has exceeded 1,400 trillion won and that discretionary wrap account contract assets have increased to about 105 trillion won.

New funding and management businesses such as short-term notes and IMA accounts are also variables. It was assessed that major large brokerages such as Korea Investment & Securities, Mirae Asset Securities and NH Investment & Securities are generating net interest income by using funds raised through short-term notes and IMA.

Even so, the prevailing view is that it is still uncertain whether brokerage stocks will again become leading shares that drive the overall market. Demand remains concentrated in semiconductors, and if the growth in trading value slows, it will be difficult to expect the same increase in brokerage profit as in the first half.

Woo Do-hyung (우도형), an analyst at Yuanta Securities, said, "For a share price recovery, there needs to be gains in other sectors excluding semiconductors and in KOSDAQ." He added, "For the time being, excess returns by the brokerage sector versus the KOSPI could be limited."