Korea Trading Hours Cure Doubted as Volumes at 2007 LowSharon Cho
Seo Sang Young, a 42-year-old general manager at Woori Investment & Securities Co. who has watched his brokerage commissions drop by half since 2010, says longer trading hours will do nothing to cure his pain.
History also suggests the Korea Exchange’s proposal to extend opening times may fail to lift equity volumes from the lowest level in six years. When the bourse got rid of its one-hour lunch break in May 2000, trading increased for just two months before erasing those gains and ending 20 percent lower within a year. Turnover in Hong Kong has declined 14 percent since the city lengthened trading hours in March 2011.
“The plan is merely lip service,” said Seo, who works in Suwon, south of Seoul. “I don’t see much of an impact.”
South Korea’s bourse is betting longer hours will lure more investors from across Asia and Europe, after foreigners added $19 billion to the nation’s stock market since 2011. Hyundai Securities Co., South Korea’s fifth-biggest brokerage by revenue, says the proposal may only lead to more anxiety for local brokers after the industry posted its first loss since 2005 in the third quarter, cut about 1,900 jobs and grappled with a fifth year of outflows by individual investors.
“The measure could boost volume for about a month but it’s likely to drop in a one-year period as witnessed in previous examples,” David Rhee, a Seoul-based analyst at Hyundai Securities, said by phone on Jan. 23. “That’s only going to stress out more market participants.”
Korea Exchange is considering longer trading hours after the official close and may increase its six-hour regular trading day within five years to boost liquidity, the bourse said on Jan. 9 in its first development plan since Choi Kyung Soo took over as chairman in October.
The hours should be extended to overlap with the opening of European markets and move more in line with Asian exchanges including Singapore, Choi said in a meeting with reporters yesterday.
South Korea’s regular trading session for equities lasts from 9 a.m. to 3 p.m. Seoul time, while options and futures change hands through 3:15 p.m. A late futures session takes place between 6 p.m. and 5 a.m. The exchange will consult with financial regulators and industry officials on the proposal and no conclusion has been reached, Chae Nam Gi, director of the stock market division at the Korea Exchange, said by phone on Jan. 23.
The Kospi index added 0.3 percent to 1,916.93 at the close in Seoul. The gauge sank 1.6 percent yesterday to the lowest level since August amid concern that slower Chinese growth and reduced Federal Reserve stimulus will spark capital outflows from emerging markets. The gauge has dropped 4.7 percent this year, while the won has weakened about 2.7 percent against the dollar and the yield on 10-year government notes is little changed at 3.61 percent.
The 30-day average turnover of Kospi index shares fell to 3.5 trillion won ($3.2 billion) on Dec. 30, the lowest level since April 2007, and was at 3.7 trillion won yesterday, according to data compiled by Bloomberg. That’s down from about 7 trillion won three years ago.
The South Korean brokerage industry posted a combined loss of 23.3 billion won in the three months ended September, its first since the period ended March 2005, according to data compiled by the Financial Supervisory Service. Securities firms closed as many as 172 offices in the 12 months through September, while industry headcount dropped by more than 4 percent, FSS data show.
Shares of Woori Investment & Securities declined 4 percent this year and closed at the lowest since September 2011 yesterday. Hyundai Securities Co. has retreated 2.9 percent, following a 35 percent slump last year. Daewoo Securities Co., the nation’s biggest brokerage by revenue, has lost 3.2 percent in 2014.
The “environment for the industry is most likely to worsen with the quality of work itself getting even lower,” Lee Jin Woo, a Seoul-based money manager at KTB Asset Management Co., which oversees about $6.6 billion, said by phone.
Longer hours may attract more overseas investors and high-frequency traders, boosting volumes and supporting broker earnings, Michael Na, a Seoul-based analyst at Nomura Holdings Inc., said by phone on Jan. 23. There’s a two-hour gap between the close of South Korea’s regular trading session and the open of the London Stock Exchange, while the Seoul close coincides with the market open in Dubai and the difference is 8.5 hours with New York.
Foreign investors accounted for about 29 percent Kospi index volumes in 2013, up from 26 percent five years earlier, according to exchange data compiled by Bloomberg.
“Having trading hours which are overlapping or closer to the time zone of developed markets is definitely a plus,” David Gaud, a Hong Kong-based senior money manager at Edmond de Rothschild Asset Management, which oversees about $120 billion, said in an e-mail interview on Jan. 20. “With a longer afternoon session, South Korea would be included more directly in the big investment moves driven by changes in global monetary conditions.”
Volumes will only rebound once the nation’s individual investors return to the stock market, said Woori Investment’s Seo. Individuals, which accounted for 47 percent of trading last year, pulled more than 5 trillion won from Kospi shares during that period. They unloaded equities as rental costs climbed to the highest level since at least 1986 and household debt rose to a record, giving them less extra cash to invest.
“The biggest problem now is that the retail investors are not taking an active position,” Seo said. “They remain concerned about the market.”