Leverage Regulations Send Trading Volume Tumbling; Brokerages Turn to Dividend Stocks

[Financial News] Trading value in the domestic stock market is likely to decline in August as regulations on leveraged single-stock exchange-traded funds (ETFs) are tightened, according to a new forecast. However, since the absolute level of trading remains high, the impact on brokerage earnings is expected to be limited. Analysts also say investors should pay attention to the rising appeal of dividend stocks after recent share price corrections.
On the 4th, SK Securities maintained its 'overweight' view on the brokerage sector. Youngim Jang, a researcher at SK Securities, said that the average daily trading value in the domestic market fell 27.6% month on month to 99.5 trillion won in July from 137.5 trillion won in the previous month. By segment, the Korea Exchange accounted for 43 trillion won, NextTrade (NXT) for 23.3 trillion won, and ETFs for 33.3 trillion won. Still, she said the overall trading base remains solid, as the figure is well above the 84.8 trillion won recorded in the first quarter of this year.
In July, trading in leveraged single-stock ETFs in particular drove the broader ETF market. Trading value for leveraged single-stock ETFs reached 261 trillion won, accounting for 36% of total ETF trading value. But trading dropped sharply after the financial authorities raised the initial deposit requirement for leveraged single-stock ETFs to 30 million won starting on the 31st of last month. On the first day of the rule, the average turnover rate for leveraged single-stock ETFs fell from 160% to 52.5%, while average daily trading value dropped 73% from 11.7 trillion won to 3.2 trillion won.
Greater market volatility also affected investor waiting funds. Investor Deposits in July fell 15.5% month on month to 109.7 trillion won, while the credit balance on margin loans declined 8.4% to 34.5 trillion won. Even so, the market is not seen as having suffered a sharp liquidity contraction, as Investor Deposits still remain above 100 trillion won.
Jang said, "Despite concerns over slowing trading value, the investment appeal of brokerage stocks remains high." She explained, "Recent share price corrections have lowered the sector's average price-to-book ratio (P/B ratio) to around 0.9 times, and dividend investing could become more attractive given expectations that full-year earnings will reach an all-time high this year."
In particular, the sector's average expected dividend yield is estimated at about 6.0%, with Samsung Securities, NH Investment & Securities, and Kiwoom Securities forecast to post high yields of 7.4%, 7.8%, and 7.3%, respectively. Among preferred shares, Korea Financial Group preferred shares and NH Investment & Securities preferred shares are expected to offer the highest dividend yields, at around 9% each. Jang noted, "Korea Financial Group preferred shares have a favorable premium discount ratio of 25.4%, while NH Investment & Securities preferred shares are expected to provide downside support thanks to their high dividend payout ratio."

[email protected] Choi Du-seon Reporter