[Edaily Reporter kyoungeun kim ] Although investor sentiment toward securities stocks has cooled as stock market trading volume has fallen significantly compared to the first half of the year, analysts suggest that the slowdown in the sector has already been largely factored into stock prices, indicating that the market has bottomed out. They note that the average dividend yield exceeds 7% and that conditions for bond management in the fourth quarter are expected to be favorable.

Jang Young-im, an analyst at SKSecurities, made these remarks in a report on the 4th while maintaining an “Overweight” investment rating on the securities sector. The average daily trading volume in October was 58.5 trillion won, up 3.0% from the previous month (56.7 trillion won). While the combined volume of the Korea Exchange (KRX) and Nextrade (NXT) fell 5.1% to 38.1 trillion won, the daily average trading volume of exchange-traded funds (ETFs) rose 22.6% to 20.4 trillion won, supporting the overall trading volume.

However, on a quarterly basis, the performance is lackluster. The average daily trading volume in the third quarter was 75.3 trillion won. Analyst Jang stated, “Assuming the current level continues through November and December, it would represent a 22.3% decrease from the previous quarter,” and lowered his forecasts for average daily trading volume this year and next year to 83.9 trillion won and 58 trillion won, respectively. He analyzed, “The main reason for the significant decline in investor sentiment toward securities stocks is that, after average daily trading volume reached 118.1 trillion won in the second quarter, there have been no signs of a rebound in the second half of the year.”

Idle funds in the stock market are also shrinking. Investor deposits stood at 94.6 trillion won in October, down 6.5% from the previous month, continuing a downward trend since June, while the balance of margin trading loans also fell 3.4% to 31.8 trillion won.

He pointed out that earnings expectations for the third quarter should be lowered further. Analyst Jang explained, “All macroeconomic indicators—including high stock market volatility, a decline in the won-dollar exchange rate, and rising interest rates—were unfavorable,” adding, “While the securities industry is typically not highly sensitive to exchange rate fluctuations, the won fell by as much as 197 won in the third quarter, exposing firms to valuation losses on foreign currency assets.”

Excluding MIRAE ASSET SECURITIES(006800)—which is expected to post a loss due to valuation losses on SpaceX— KOREA INVESTMENT HOLDINGS(071050)and DaishinSecurities(003540)are projected to fall short of consensus estimates. KOREA INVESTMENT HOLDINGS’ third-quarter net income attributable to controlling shareholders is expected to be 297.2 billion won, down 55.9% year-over-year, while DaishinSecurities is estimated to post a loss of 1.8 billion won, primarily due to valuation losses (approximately 150 billion won) resulting from the decline in the stock price of SAMSUNG C&T CORPORATION(028260), which it holds.

Nevertheless, the firm judged that the stock remains attractively valued. Analyst Jang stated, “The current average price-to-book ratio (PBR) among the brokerages we cover is 0.7x, which is at or below the level seen at the beginning of the year,” adding, “Although trading volume is on a downward trend, it remains at a level that is absolutely higher than in the fourth quarter of last year, and considering that the first half of the year was exceptionally high, there is no reason to value the stock lower than its current level.” He continued, “As yields on 3-year and 10-year government bonds fell by 30 basis points (1 bp = 0.01 percentage point) and 40 basis points, respectively, from the previous month as of late October, bond trading profits in the fourth quarter will be more favorable than in the third quarter. Furthermore, with interest rates stabilizing and the downward trend in the exchange rate abating, fourth-quarter earnings are expected to improve compared to the third quarter.”

He identified SamsungSecurities and NH INVESTMENT & SECURITIES as top picks, citing their relatively low earnings volatility within the sector and high dividend yields. He maintained his “ KIWOOM Securities(039490)” rating on other stocks of interest. Analyst Jang assessed, “KIWOOM Securities’ stock price has fallen significantly following an earnings shock, pushing its dividend yield up to 9.8%, and the prospect of tax-free dividends next year is a positive factor.”