Trading volume plunges on eurozone woes

KOSDAQ market cap dips below W100tr for first time since September


The market capitalization of local bourses and the value of daily stock trading plunged recently on growing investor angst as the European debt crisis continues to drag down the global economy.

Rising concerns of a Greek exit from the eurozone and a bank run in Spain, along with slowing growth in the world’s two largest economies ― the U.S. and China ― have weakened investor sentiment.

The aggregate market value of the benchmark KOSPI and the tech-heavy KOSDAQ dropped to levels seen late last August when the U.S. financial crisis was at its height. Meanwhile, the daily trading value fell way below the August levels.

The market capitalization of the KOSPI stood at 1.061 quadrillion won ($0.9 trillion) as of May 31, slightly below 1.062 quadrillion won at the end of August.

The market cap of the KOSDAQ was 99 trillion won on May 31, smaller than 102 trillion won on Aug. 31 last year. It is the first time since a dip last September that the KOSDAQ market cap has fallen short of 100 trillion won.

Declines in daily trading value were sharper.

The value of shares traded on the KOSPI tumbled to 4.6 trillion won on May 31, down 25 percent from 6.2 trillion won on Aug. 31.

Stocks traded on the KOSDAQ on May 31 were valued at 1.56 trillion won, down 31 percent from 2.27 trillion won on Aug. 31.

For local brokerages to break even, the combined value of daily trading on the KOSPI and the KOSDAQ markets should amount to at least 6.5 trillion won.

With the latest combined trading value dropping to slightly over 6 trillion won, many brokerages are bound to lose money. Brokerage commissions account for between 65 and 70 percent of local securities companies’ sales.

“Earnings of small and medium-sized securities firms which rely heavily on brokerage commissions are expected to dwindle,” a market watcher said.

“There is a possibility of restructuring across the brokerage industry starting from the least profitable branches.”

The descent in trading value is steepening.

Value of shares traded hovered just above 4 trillion won on the KOSPI and around 1.6 trillion won on the KOSDAQ on Monday and Tuesday.

The average daily trading value had been around 7 trillion won until April, but has decreased to between 5 and 6 trillion won since May.

By Kim So-hyun (sophie@heraldcorp.com)