"I want to buy Korean stocks": Hong Kong knocks on the door… A frenzy even for 'K-stocks'

"People who suddenly come to our office out of the blue saying they 'want to buy Korean stocks' have increased significantly."

Local representatives of domestic securities firms that have expanded into Hong Kong are feeling the K-stock boom this year. Until last year, Hong Kong investors knew nothing about Korean stocks, but now there is hardly anyone who does not know Samsung Electronics or SK Hynix.

As a result, changes have occurred in the business models of domestic securities firms' Hong Kong subsidiaries. Previously, their business model centered on institutional investor sales, such as bond brokerage for local institutional investors, investment banking (IB), and proprietary trading. Now, there is a movement to strengthen distribution functions that directly connect Korean stocks and financial products with investors in Hong Kong and overseas, in addition to these existing activities.

The most notable case is the global investment platform 'MAPS' unveiled by Mirae Asset Securities' Hong Kong subsidiary in June. MAPS stands for Mirae Asset Portfolio Service, a service that allows trading of traditional assets such as stocks and digital assets on a single platform. It enables trading of overseas stocks, Korean stocks, and even crypto (virtual assets) all in one place.

This signifies an entry into the retail market targeting local individuals and high-net-worth individuals (HNWI), going beyond sales to existing institutional investors. It is the first case of a domestic securities firm entering the Hong Kong retail market. Anthony Chan, Director of Wealth Management (WM) Investment Advisory at Mirae Asset Securities' Hong Kong subsidiary, said, "We noticed that customer interest in conveniently accessing various global markets, including Korea, is increasing, and we paid attention to the rapidly maturing regulatory environment for digital assets in Hong Kong." He added, "We viewed this as a natural turning point and launched 'MAPS.'"

Improved accessibility to the Korean market is also cited as a factor driving these changes. A representative institutional change is the integrated account for foreigners. This system allows overseas local investors to trade Korean stocks through local securities firms without directly opening accounts with domestic securities firms. If an overseas securities firm opens one integrated account with a domestic securities firm, it can process trades for multiple investors under that account.

Lim Kyung-jun, Head of Korea Investment & Securities' Hong Kong subsidiary, said, "In Hong Kong, various financial institutions are active, including large global financial institutional investors, family offices, asset managers, securities firms, and private banks (PB)." He added, "Accessing Korean stocks through local financial institutional investors or Korean-affiliated securities firms is much more efficient in terms of cost and procedure."

He continued, "I believe the core of activating integrated accounts for foreigners is not simply increasing the number of account openings, but enabling Hong Kong financial companies to naturally provide Korean stocks as an investment product category to their existing customers."

Korea-related ETFs (Exchange-Traded Funds) listed on the Hong Kong stock market are also enhancing local investment accessibility. Currently, the Hong Kong stock market trades not only 2x leverage products for Samsung Electronics and SK Hynix but also the KOSPI 200 ETF, CSOP FTSE Hong Kong-Korea Tech Plus Index ETF, and CSOP KOSPI 200 Covered Call Active ETF. The cumulative trading value of the SK Hynix 2x leverage product has exceeded 1 trillion won from the beginning of this year through August. In June, it ranked third in monthly trading value.

In the same month, an ETF tracking the KOSPI 200 index was listed, and its trading value surpassed 30 billion won within five minutes of trading. This is the first time a KOSPI 200-tracking ETF has been listed on an Asian stock market outside of Korea. Ding Chen, CEO of CSOP, said, "The importance of the Korean stock market in global portfolios is growing." He added, "The launch of the CSOP KOSPI 200 ETF is an important step connecting Hong Kong investors with investment opportunities in Korea."

In the past, overseas investors had to open accounts directly with domestic securities firms to invest in Korean stocks, creating high procedural and psychological barriers. Now, with direct investment through integrated accounts for foreigners and indirect investment through Korea-related ETFs broadening the pathways, entry barriers have been significantly lowered.

Expectations are growing that domestic securities firms' Hong Kong subsidiaries will post record-breaking results this year. Although official statistics have not been released, it is reported that first-half trading commissions have already hit an all-time high due to the K-stock boom.

According to corporate disclosures and other sources, the net income for the first half of this year (pre-tax profit for Mirae Asset Securities) for the Hong Kong subsidiaries of Mirae Asset Securities, NH Investment & Securities, Korea Investment & Securities, and Samsung Securities totaled 321.2 billion won, surpassing their annual net income last year (174.2 billion won). This means they generated profits 84% higher than last year's annual results in just six months.

The growth of Mirae Asset Securities' Hong Kong subsidiary is particularly prominent. Its pre-tax profit for the second quarter of this year is estimated at 213.1 billion won (reflecting a 35% share of Hong Kong in overseas subsidiaries' pre-tax profits). This is 2.6 times that of the first quarter (81.3 billion won). The first-half pre-tax profit was 294.4 billion won, already surpassing last year's annual net income (117.4 billion won).

Representatives of the Hong Kong subsidiaries unanimously stated, "With brokerage revenue increasing significantly due to the boom in the Korean stock market, we will achieve results exceeding those of the previous year."

However, with the emergence of unfavorable market changes such as volatility in the Korean stock market, the Middle East war, and interest rate hike trends in the second half, the Hong Kong subsidiaries have also begun preparing countermeasures. A notable point is that investment in Korean stocks in the Hong Kong market is concentrated on Samsung Electronics and SK Hynix. Since brokerage revenue has increased significantly centered on these two stocks, their stock price movements could determine the performance of the Hong Kong subsidiaries.

Lee Yun-gi, Head of NH Investment & Securities' Hong Kong subsidiary, said, "While we maintain a positive long-term outlook for Korean stocks within Hong Kong, current interest is overwhelmingly concentrated on AI (artificial intelligence), HBM (High Bandwidth Memory), and memory semiconductors, essentially in Samsung Electronics and SK Hynix." He added, "There are not many other stocks suitable to attract foreign investors besides these two, so I believe it is necessary to improve foreign investment accessibility, including tax, dividend, and voting rights processing, along with the continuous promotion of value-up program policies."

NH Investment & Securities is steadily expanding new businesses, such as its equity swap business, which was launched last year as the first among domestic securities firms for business diversification. The equity swap business is expected to surpass its break-even point in its first year.

Korea Investment & Securities comprehensively reorganized its business structure and organization this year. In addition to existing businesses, it expanded IB businesses where the headquarters has strengths, such as global DCM (Debt Capital Markets), syndicated loans, and acquisition finance. Indeed, together with its headquarters, it successfully completed syndicated loans of $350 million (approximately 472 billion won) for Hyundai Card and $300 million (approximately 404.6 billion won) for Woori Card this year.

Head Lim said, "Overseas subsidiaries of domestic securities firms are developing in a direction where they discover deals locally, connect global investors, and generate independent profits, rather than simply serving as support organizations for the headquarters." He added, "Korea Investment & Securities' Hong Kong subsidiary will strengthen its role as a platform connecting Korean, Hong Kong, and global capital markets."