Korean securities stocks underperformed during the second quarter despite strong market gains and expectations of solid Q2 earnings. From April to June, the KOSPI rose 67.77 percent while the KRX Securities Index fell 10.69 percent, and in June alone the KOSPI remained flat at 0.00 percent while the KRX Securities Index dropped 16.43 percent, according to Korea Exchange data. Market participants attributed the divergence to concerns that the growth rate of trading volume—which supported brokerage commission revenue—may have peaked and could slow in the second half. The pattern echoes a similar disconnect in 2011 when capital concentrated in specific leading sectors while securities stocks lagged, though current conditions differ with strong semiconductor industry performance and export figures sustaining high trading volumes.
KRX Securities Index Falls 16.43% in June as KOSPI Stays Flat
According to Korea Exchange, the KOSPI rose 0.33 points (0.00 percent) in June, effectively remaining flat. During the same period, the KRX Securities Index fell 16.43 percent, moving in the opposite direction of the broader market. For the entire second quarter from April to June, the KOSPI increased 67.77 percent while the KRX Securities Index declined 10.69 percent. The divergence contrasts with the typical pattern where securities stocks strengthen alongside increases in trading volume. Daily average trading volume reached 100 trillion won during the period, yet the securities sector remained relatively isolated from the market rally.
SK Securities Analyst Compares Current Market to 2011 Rally Pattern
Jang Young-im, a researcher at SK Securities, stated that "despite an unprecedented index rise and an era of 100 trillion won in daily average trading volume, securities sector stock prices have been significantly weak." Jang noted that "similar to the 2011 Cha-Hwa-Jeong (automobile-chemical-refining) rally, capital is concentrated in specific leading stocks, creating a paradoxical phenomenon where securities stocks are isolated despite favorable market conditions." According to Jang's analysis, in 2011 capital flowed into specific sectors including automobiles, chemicals, and refining, keeping the index and trading volume solid while securities stocks declined first. Jang explained that the current situation differs from 2011 in that the semiconductor industry outlook and Korean exports remain strong, and trading volume maintains high levels, whereas 2011 saw overlapping external negative factors including weakening Cha-Hwa-Jeong industry conditions, U.S. credit rating downgrades, and the European fiscal crisis.
ETF Market Growth Offsets Trading Volume Slowdown Concerns
Market observers identified concerns that trading volume growth may have peaked as a factor weighing on securities stock sentiment. With first-quarter daily average trading volume increasing more than 80 percent compared to the previous quarter, market participants viewed a similar pace of growth in the second half as unlikely, and this perception reflected in stock prices. However, some analysts argued the concern is excessive given that absolute trading volume remains at high levels even if the growth rate moderates. The structural growth of the exchange-traded fund (ETF) market may partially offset brokerage revenue decline concerns. ETF trading expanded rapidly following the launch of single-stock leveraged products, supporting overall trading volume. The expansion of ETF trading affects not only brokerage commission revenue but also competition for market share among securities firms.
Government Pursues Foreign Investment Expansion and KOSDAQ Activation Policies
Financial authorities are pursuing measures to expand eligible investments for foreign integrated accounts to include domestic ETFs and exchange-traded notes (ETNs). The government's policies to activate the KOSDAQ market are becoming more concrete. Market participants expect that if trading currently concentrated in large-cap semiconductor stocks on the KOSPI spreads across the broader market, this could serve as a positive factor for the securities sector.
FAQ
Q: What happened to Korean securities stocks in the second quarter despite the KOSPI surge?
A: From April to June, the KOSPI rose 67.77 percent while the KRX Securities Index fell 10.69 percent. In June alone, the KOSPI remained flat at 0.00 percent while the KRX Securities Index dropped 16.43 percent, according to Korea Exchange data.
Q: Why did securities stocks underperform when trading volume reached 100 trillion won daily?
A: Market participants attributed the underperformance to concerns that trading volume growth may have peaked after first-quarter daily average volume increased more than 80 percent compared to the previous quarter. SK Securities analyst Jang Young-im noted that capital concentrated in specific leading stocks similar to the 2011 Cha-Hwa-Jeong rally pattern, creating a disconnect between market gains and securities sector performance.
Q: What policies is the government pursuing to support the securities sector?
A: Financial authorities are pursuing measures to expand eligible investments for foreign integrated accounts to include domestic ETFs and exchange-traded notes (ETNs), and the government's policies to activate the KOSDAQ market are becoming more concrete.
