South Korean brokerage houses, hit by a decline in stock turnover and a bearish run on the local stock market, have been trading near yearly lows, but going against the investor crowd may hold true for the ugly duckling shares, analysts said Friday.

Shares of major brokerage houses led by Samsung Securities and Woori Investment Securities have been on a downhill road with the a subindex gauging the sector’s share prices dropping more than 17 percent since the end of 2012, as investors bet that they would continue to brace for a decline in earnings.

In particular, their share prices have been sagging since mid-November when the country’s financial regulator lifted a short-selling ban on financial shares.

“All things, particularly their business results, have not been good, and investors have shunned these stocks due to depressed fundamentals and a drop in their share prices,” said Lee Tae-kyung, an analyst at Hyundai Securities. “But the sector seemed to have bottomed out and may show a modest recovery.”

Their earnings for the October-December period is widely forecast to have further worsened. Daishin Securities estimated the combined net profit of six major players at 73.9 billion won ($69.6 million) during the cited period, dropping 37.4 percent from three months earlier and 53.8 percent from a year earlier.

Their poor business performance mainly came from a decline in stock turnover, which averaged some 4 trillion won last year, sharply falling from the previous year’s 4.8 trillion won. The country’s key stock index, the KOSPI, carved out a meager 0.72 percent gain last year, nosediving from the previous year‘s annual rise of 9.4 percent.

“Investors are well aware of their low profitability, and their valuations have been reassessed since the lifting of the short-selling ban,” said Kang Seung-kun, an analyst at Daishin Securities. “Their downhill moves may be limited going forward.”

Analysts said the brokerage houses can be lucrative investments as the country’s stock market is expected to zoom high this year in line with an economic recovery and friendly policies are likely to turn investor sentiment positive toward them.

“I think they are undervalued, and the government is moving to create a sector-friendly environment,” said Seo Young-soo, an analyst at Kiwoom Securities.

Last week, South Korea‘s bourse operator unveiled a set of plans, including extending trading hours, to bring vitality back to the local stock market. The Korea Exchange (KRX) also said it will propose cutting stock transaction tax and maintaining the current nontaxation on trading of financial derivatives. The South Korean government is seeking to levy a tax of 0.001 percent of their turnover value per futures trading and 0.01 percent for options dealing.

But some analysts point out that a structural problem could be one of key reasons for the sector’s slump. Local brokerages are also heavily dependent on brokerage commissions, and there are too many players out there.

“The possibility of expanding trading hours, M&A moves and others could be positive factors for the sector,” said Rhyu Seung-chang, an analyst at KB Investment & Securities. “But investors‘ preference for risky assets could be key to an increase in their profitability.” (Yonhap News)