Kiwoom Securities, in a sector report published on the 25th, noted that listed Korean brokerage stocks have been in correction for roughly two months since early May, and offered an analysis of the causes and valuation appeal.

Analyst Ahn Young-jun at Kiwoom identified three drivers of the decline: fears that trading volumes and earnings have peaked; stagnation in trading-volume turnover rates; and a re-rating of price multiples that outpaced underlying earnings and book-value growth.

Monthly trading value on Korean exchanges hit successive all-time highs in both April and May. Yet the annualised market-capitalisation turnover rate — a measure of how actively investors trade relative to the total size of the market — peaked at 404% in January this year and has failed to break higher since. The previous cycle high was 442%, recorded in January 2021.

The average price-to-book ratio (PBR) for Korean brokerage stocks rose from roughly 0.5x at the start of last year to 1.5x in February this year, partly reflecting optimism over the planned introduction of integrated foreign-investor brokerage accounts. In practice, however, the actual impact of that reform has so far been modest.

The report nonetheless sets out reasons why the higher multiples could prove durable, drawing chiefly on the Japanese experience. Since Japan launched its corporate "value-up" programme in January 2023 — a government-backed initiative to improve capital efficiency and lift depressed valuations — shares in Daiwa Securities and Nomura Securities have trended steadily upward, with both now trading at PBR multiples of around 1.0–1.2x.

Given that South Korean brokerages generate higher returns on equity (ROE) than their Japanese peers, yet are now trading at similar PBR levels, the report concludes that prices are close to a floor.

Structural factors cited as support for a sustained re-rating include: broader economic growth expectations tied to the artificial-intelligence investment cycle; improved capital efficiency driven by South Korea's own value-up programme; and the continued expansion of the retail investment market and corporate capital-raising activity.

Kiwoom Securities maintained its Overweight rating on the brokerage sector.