China Securities Firms Set to Bounce Back
The recent rebound of the A-share market is likely to help revive China’s securities brokerage industry, which performed poorly in the first half of the year. With investors getting excited about a stock market recovery, securities firms – particularly smaller and regional brokers – have started to raise commission rates, bucking the declining trend in stock trading fees as competition among brokers intensified in the past few years.
Chinese securities firms suffered a tough first half with many of them witnessing sharp declines in net profits as they were hit hard by the gloomy stock market and light trading volume.
Among the 58 securities firms that have released their half-year reports, only seven posted gains in earnings, according to data from Shanghai-based Wind Info, a financial data provider. Those who rely heavily on commissions suffered the biggest loss with Zhongshan Securities, a Shenzhen-based broker posting a year-on-year 77 percent drop in earnings for the first half.
But with stock market starting to warm up and investor sentiment improving, securities brokerages are expected to see a recovery in business in the second half, analysts said.
“The business environment is getting better for securities firms as the market has started to recover and stock trading is getting more active,” said Zhang Qi, a Shanghai-based analyst at Haitong Securities.
The benchmark Shanghai Composite Index, the world’s worst performer this year after Greece, has rebounded 10 percent after hitting a 15-month low by plunging nearly 30 percent.
Although the stock brokerage business still accounts for about two-thirds of the industry’s revenue, Zhang said many large securities firms are trying to ramp up their investment banking and securities underwriting businesses to take advantage of China’s rapidly growing IPO market.
Investment banking has started to replace stock brokerage as the main source of larger securities firms’ revenues. Ping An Securities was the biggest winner by making 1.21 billion yuan from securities underwriting in the A-share market in the first half of the year, according to Wind Info.
In the meantime, domestic securities brokerages are exploring business opportunities in international capital markets by establishing partnership with overseas peers.
CITIC Securities, China’s largest brokerage by assets, earlier this year reportedly agreed to acquire a minority stake in Hong Kong-based brokerage CLSA Asia-Pacific Markets.
Haitong Securities, the second-largest brokerage, bought a 53 percent stake in the Hong Kong-based Taifook Securities for $235 million.
Source: China Daily