Sluggish trading is constraining the earnings of securities companies, but there is no imminent pressure of businesses closing or downsizing, a ratings agency said yesterday.
The government’s proposal to tax capital gains on securities investments — in addition to risk aversion caused by Europe’s debt problems — has negatively affected the TAIEX and the volume of stock market transactions, Sophia Chen (陳怡如), Fitch Ratings Taiwan’s analyst on financial institutions, told a media briefing.
Chen’s comment lent support to securities houses’ complaints that they are bearing the brunt of policy uncertainty as major and daily players stay on the sidelines while politicians wrangle over the plan.
The Taiwan Securities Association (證券公會) has warned of massive layoffs amid falling fee incomes if daily turnover were to remain below NT$80 billion (US$2.69 billion). There are 86 securities houses with 1,200 outlets nationwide employing 50,000 people, according to the association.
Major and daily players — with annual transactions totaling more than NT$50 million — account for only 3.2 percent of all investors numbering 3.41 million, but contribute 41.8 percent of total trading, the association said.
“Securities houses heavily reliant on their brokerage business for income need a daily [market] turnover of NT$100 billion to break even,” Chen said, adding that the need is even more urgent for firms with a small market share.
Up to 30 domestic brokerages that have a market share of less than 1 percent are more vulnerable to stock market downturns and are under greater ratings downgrade pressure, Chen said.
On average, equities transactions — including over-the-counter deals — shrank to NT$89 billion a day last month, compared with NT$132 billion in the first quarter and NT$126 billion last year, Fitch Taiwan senior director Jonathan Lee (李信佳) said.
The volume has slumped even below the daily average of NT$85 billion in 2001 when the technology bubble burst, Lee said.
“While weak sentiment is to blame for the sluggish trading, [Taiwan’s] simpler operations limit securities firms’ ability to boost earnings and cross-border competitiveness,” compared with the more complex business models of their South Korean and Japanese peers, Lee said.
He expects turnover to improve once policy uncertainty settles.
Most securities firms have sufficient capitalization to withstand market volatility, thanks partly to the strict regulatory regime that bars high leveraging, Fitch said.
The ratings agency believes the sector will consolidate as large players seek to enhance synergy benefits through mergers and acquisitions, while smaller standalone brokers struggle to overcome their lack of scale, group support and a cross-selling platform, Chen said.
The pace of integration will likely be gradual, as Taiwan does not allow hostile takeovers and many securities companies are under family control, she said.