The worst is over for the South Korean brokerage industry as speculation of rising dividends and an improving economy boosts investor appetite for stocks, according to Bank of America Corp.
The 30-day average trading volume of Kospi index equities has increased 47 percent from a seven-year low on May 12, as foreign investors added $9.3 billion to their holdings through yesterday, according to data compiled by Bloomberg. Shares of 26 listed Korean securities firms have rallied an average 25 percent in the period, versus a 5.3 percent gain in the Kospi.
Asia’s sixth-largest stock market is trading near a three-year high, fueled by government stimulus efforts and optimism that Finance Minister Choi Kyung Hwan’s push for bigger dividends will lead to higher shareholder returns. Korean securities firms posted combined losses of 109.8 billion won ($108 million), closed more than 90 offices and cut almost 3 percent of their headcount in the nine months through December.
“Trading volumes are starting to see a recovery,” Edward Kim, managing director and head of Korea equity sales at Bank of America Merrill Lynch, said in an interview at his office in Seoul yesterday. “We expect more upside in the next three years with the government’s drive to boost the market.”
Samsung Securities Co., the country’s biggest brokerage by market value, has climbed 40 percent in Seoul trading from this year’s low on March 20, while Daewoo Securities Co. and Mirae Asset Securities Co. both rose more than 30 percent. The Kospi slipped 0.4 percent to 2,068.54 at the close, paring this year’s gain to 2.8 percent.
The benchmark index may climb a further 8 percent by year-end, according to Bryan Song, the head of Korea equity research at Bank of America. In July, the finance ministry announced plans to impose a tax penalty on Korean companies’ high cash reserves after the Kospi’s dividend yield fell to 1.2 percent, the lowest level worldwide.
“That was definitely viewed as a big event,” Song said.
The finance minister also said last month he would increase government expenditure by 11.7 trillion won ($11.5 billion) in the second half by freeing up cash from state-run programs and signaled next year’s budget will be “as expansionary as possible.” Korea’s central bank cut interest rates this month for the first time since May 2013.
Kim said the number of investors scheduled to attend Bank of America’s Korea conference in Seoul next week has increased 21 percent from last year, another sign of growing interest in the nation’s stock market.
“We’re seeing a rise of interest and optimism from overseas investors,” he said. “If the positive vibe continues, the Kospi may hit the 2,500-point mark by next year.”