South Korean brokerages posted worse-than-expected third-quarter net profit, data from the Financial Supervisory Service showed Sunday, with the lackluster performance attributed to a sluggish stock market coupled with local investors’ soured sentiment toward derivative products.

According to the FSS’ electronic disclosure board, five major brokerages that have disclosed their third-quarter earnings report all saw substantial drops in net profit on-quarter and fell short of market expectations.

NH Investment & Securities, currently ranked No. 2 among peers in terms of net assets, posted third-quarter net profit of 80.7 billion won ($72 million), a 25 percent loss on-quarter. This is also 23 percent less compared to the same period last year.

The median forecast by local analysts had projected around 95 billion won for NH Investment & Securities, nearly 15 percent higher than actual result.
 

Third-quarter net profits of KB Securities and Hana Financial Investment -- brokerage units of major financial holding entities here -- fell nearly 34 percent and 35 percent on-quarter respectively to 61.4 billion won and 58.6 billion won.

Shinhan Investment, another brokerage under a large financial holding company, posted third-quarter net income of 59.3 billion won, down 17.6 percent compared to the previous quarter.

In the same July-August period, Hyundai Motor Securities’ net income fell 55.5 percent from the previous quarter to 13.5 billion won.

Analysts said that risks stemming from the ongoing US-China trade war, coupled with Japan’s implementation of trade restrictions against South Korea, weighed heavily on the local stock market in the third quarter.

This resulted in a drop in commission income, while the latest frenzy surrounding commercial banks and some brokerages’ sales of risky derivative products fueled a cautious mood among investors.

According to recent data from the Korea Securities Depository, third-quarter sales of equity-linked securities, which derive value from stock indexes, fell 35.3 percent to 17.9 trillion won on-quarter. Sales of derivatives-linked securities dropped 24.8 percent to 6.5 trillion won in the cited period.

“The combined net profit of four major brokerages -- Mirae Asset Daewoo, NH Investment & Securities, Samsung Securities and Kiwoom Securities -- is likely to drop around 20 percent compared to the last quarter,” Baek Doo-san, a senior analyst at Korea Investment & Securities, said in a note.

“The overall business related to trading has been riding a downhill trend and their investment banking business has also been lackluster in recent months due to a base effect,” he added.

Remaining firms, including Mirae Asset Daewoo, Meritz Securities and Kiwoom, are slated to release their earnings report early next month, but they are unlikely to turn the tables, according to analysts.

However, the situation may improve in the fourth quarter, buoyed by anticipation surrounding a possible small trade deal between Washington and Beijing.

The brokerages’ fourth-quarter revenues are to improve slightly, though firms get hit by higher expenses at the end of the year, Baek noted.

By Jung Min-kyung (mkjung@heraldcorp.com)