Customer Deposits Stay Above KRW60tr Mark
The author is an analyst of Shinhan Investment Corp. She can be reached at heeyeon.lim@shinhan.com. – Ed.
Cumulative daily average trading at KRW31.7tr in Sep; Customer deposits top KRW60tr
The daily average trading value for 3Q20 reached KRW27.7tr as of September 10, marking 27% QoQ growth. By month, the daily average trading value stood at KRW23.9tr (-0.7% MoM) for July, KRW31.0tr (+30.0% MoM) for August, and KRW31.7tr (+2.3% MoM) for September. By investor type, individual investors contributed to 80.2% of total QTD-3Q20 trading value, foreign investors 10.6%, and institutional investors 9.2%. Individual investors are putting in about KRW22tr per day into the stock market.
Customer deposits at domestic brokerages stand at KRW57tr as of September 10. Deposits surpassed the KRW60tr mark for the first time in history on August 31, dropped to KRW48tr on September 2, and recovered to KRW63tr on September 4. We attribute the rise in customer deposits to the recent boom in IPOs. The latest example is Kakao Games, which saw massive subscription demand for its IPO on September 1 and 2. The game developer raised KRW384bn through the IPO and returned excess deposits of KRW58.2tr to investors. Of the total amount returned to investors, we estimate that KRW29tr remains ready to enter the stock market with KRW16tr placed in deposits at brokerages and KRW13tr in CMAs. We expect roughly KRW16tr in net amount to be used for subscriptions to other upcoming IPOs, including Big Hit Entertainment in October 2020 and Kakao Bank in 2021.
Meanwhile, we believe the growth in credit balance will slow down, with most brokerages now nearing their credit limit. Given that credit balances are typically kept at about 40% of customer deposits, the uptrend should slow down in the near term. Going forward, securities firms are likely to carry out book re-allocation to raise credit limits.
Government support, individual investors to keep trading value at high levels
Recent changes made to real estate policies, tax reforms related to stock trading, and plans to launch the New Deal fund all show that the Korean government is committed to channeling excess liquidity into the stock market. Individuals also appear more attracted to investing in stocks amid heightened interest toward IPOs. Trading value is thus expected to remain at current high levels without risks of a sudden plunge. We recommend accumulating shares in brokerages as the entire sector should benefit from favorable market conditions.
Retain OVERWEIGHT; Top picks are Korea Investment Holdings, Kiwoom Securities
Our sector top picks are Korea Investment Holdings and Kiwoom Securities. Korea Investment Holdings has the second largest stake (33.35%) in Kakao Bank, which is slated to go public next year. Kakao Bank is valued at about KRW10tr in media reports and above KRW30tr in the OTC market. With Korea Investment Holdings’s market cap standing at KRW4tr as of September 10, we believe the value of its stake in Kakao Bank has yet to be reflected in full.
Kiwoom Securities stands to benefit the most from increased stock trading in the domestic market. With its retail brokerage market share near 30%, the company should see improvement in commission income along with the increase in overall trading value. Trading income could also rebound alongside the upturn of the domestic stock market. All in all, we believe shares in securities firms are a must-buy when trading value is on the rise.