An Autumn Chill Has Spread Across the Securities Industry(AI Translation)
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文｜财新周刊 王娟娟 全月
By Caixin Weekly's Wang Juanjuan and Quan Yue
2024年上半年，疲弱的股市加上愈加严格的监管，券商中期业绩萧瑟，优劣洗牌加速。
In the first half of 2024, a sluggish stock market combined with stricter regulations led to bleak mid-year performances for brokerages, accelerating the reshuffling of strong and weak players.
2024年上半年A股一、二级市场均表现低迷，二级市场主要三大指数均告下跌。其中，上证综指下跌0.25%、中小综指下跌12.01%、创业板综指下跌15.63%；市场景气度延续2023年下半年以来的低迷态势，日均股基成交额约在9847亿元，同比降幅接近7%。债券市场则是另一番景象，市场主要指数上半年震荡上行，中债新综合财富指数涨幅约3.76%，回报稳健。
In the first half of 2024, both the primary and secondary A-share markets exhibited sluggish performance, with the major indices in the secondary market all recording declines. The Shanghai Composite Index fell by 0.25%, the CSI Smallcap 500 Index dropped by 12.01%, and the ChiNext Composite Index decreased by 15.63%. The market sentiment continued the downturn that started in the second half of 2023, with the average daily trading volume of stocks and funds around 984.7 billion yuan, a year-on-year decrease of nearly 7%. In contrast, the bond market told a different story. Major market indices experienced fluctuations but overall an upward trend in the first half of the year. The China Bond New Composite Wealth Index increased by approximately 3.76%, offering stable returns.
股债分化严重之下，历来更看股市的天吃饭的券商度过了颇为艰难的半年。
Amid a significant divergence between stocks and bonds, brokerages, traditionally more focused on the stock market, have endured a rather challenging half-year.
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- In H1 2024, China's A-share stock market declined, impacting brokerages with the Shanghai Composite Index falling 0.25%, the CSI Smallcap 500 Index by 12.01%, and the ChiNext Index decreasing 15.63%.
- 28 out of 43 listed securities firms reported a 20% decline in net profit year-on-year, with only 6 showing improved performance.
- Conversely, the bond market performed well with the China Bond New Composite Wealth Index up 3.76%, boosting fixed-income proprietary trading revenues for brokerages.
Summary:
In the first half of 2024, the securities industry in China faced significant challenges due to the sluggish stock market and stricter regulations, leading to a reshuffling of strong and weak players. Both primary and secondary A-share markets showed declines, with the Shanghai Composite Index falling by 0.25%, the CSI Smallcap 500 Index dropping by 12.01%, and the ChiNext Composite Index decreasing by 15.63%, reflecting continued weak market sentiment [para. 1]. Meanwhile, the bond market saw stability with the China Bond New Composite Wealth Index increasing by approximately 3.76%, showcasing a divergence between stocks and bonds [para. 1].
Brokerages, traditionally stock-focused, struggled immensely. Out of 43 listed securities firms, 28 reported a combined net profit of 41.825 billion yuan, a 20% year-on-year decline, with only 6 firms showing improved performance. Large brokers like Haitong Securities saw revenues drop by 47.76% and profits decrease by 75.11%, whereas smaller brokers like Guohai Securities and Northeast Securities faced performance declines exceeding 50% [para. 2][para. 3]. Fee-based and capital-based services saw distinct outcomes, with capital-heavy proprietary trading comprising a significant portion of revenue for many firms [para. 4][para. 6].
Brokerages' proprietary trading faced both opportunities and challenges. Fixed-income trading emerged as a major driver, with bond revenues constituting a substantial portion of income. For example, Guoyuan Securities reported a net profit increase of 10%, driven by a surge in fixed-income investments [para. 7]. However, firms like Zheshang Securities struggled, with a 14% profit decline due to poor equity trading performance despite a 17.4% increase in fixed-income investments [para. 8].
Investment banking activities also suffered. IPOs and refinancing activities dropped sharply due to new regulatory measures, with all 28 brokerages displaying significant declines in investment banking revenues. CITIC Securities saw its investment banking income decrease by over 50%, and Haitong Securities witnessed a steep drop in IPO underwriting amounts [para. 13][para. 14]. Only 44 companies went public in the first half, showcasing the growing difficulty in securing new IPO projects [para. 17][para. 19].
On the asset management front, brokerages saw counter-trend growth driven by fixed-income products. The private asset management scale reached 5.8 trillion yuan by June 2024, up 9.3% from the end of 2023. Pioneering Securities and Guosen Securities reported substantial asset management revenue increases due to innovative fixed-income plus products linked to gold [para. 24].
Amid these domestic struggles, leading securities firms turned towards international expansion. Firms like China Galaxy Securities focused on overseas markets, rebranding subsidiaries for global growth. CITIC Securities, which acquired CLSA, reported significant international revenue and profit increases, expanding into markets like Japan and Southeast Asia [para. 27][para. 30].
The industry also saw an acceleration in mergers and acquisitions, leveraging market crises and regulatory encouragement. Recent notable mergers include Guosen Securities acquiring Wanhe Securities. The sector's history of major mergers highlights a market-driven consolidation to strengthen competitiveness, pointing towards more future M&A activities and potential industry reshuffling [para. 32][para. 35].
However, the long-term outlook remains complex. Brokerage businesses face intense competition and shrinking margins. The regulatory environment emphasizes building world-class investment banks, but achieving this entails overcoming challenges such as market integration issues and corporate culture compatibility in mergers. The path towards becoming leading investment banks is long, with significant internal and external obstacles to navigate [para. 37][para. 38].
- Haitong Securities
海通证券 - Haitong Securities saw its revenue and net profit plummet significantly in the first half of 2024. The revenue dropped by 47.76%, and the net profit attributable to shareholders fell by 75.11%. Haitong International, its overseas subsidiary, continued to struggle, with mid-2024 assets shrinking by nearly two-thirds from peak levels and a H1 loss of 28.73 billion HKD.
- Guohai Securities
国海证券 - Guohai Securities (000750.SZ) experienced a significant performance decline in the first half of 2024, with a reduction in net income of over 50%. The firm, like other small and medium-sized securities companies, faced substantial challenges due to a weak stock market and stringent regulations.
- Northeast Securities
东北证券 - Northeast Securities (000686.SZ) experienced more than a 50% decline in performance, with significant drops in both revenue and net profit. In the first half of 2024, like many other small and medium-sized brokerages, Northeast Securities faced severe financial pressure due to a weak stock market and stricter regulations.
- Pacific Securities
太平洋 - Pacific Securities (601099.SH) experienced a more than 50% decline in performance in the first half of 2024. The securities market faced challenges with weakened stocks and stringent regulations, leading to significant pressure on their earnings.
- Huaxi Securities
华西证券 - According to the article, Huaxi Securities' mid-2024 performance declined by over 50%. The brokerage industry overall faced significant profitability challenges, with strict regulations and a weak stock market. Self-operation became a key revenue source for many smaller firms, with bond market investments playing a critical role.
- Great Wall Securities
长城证券 - Great Wall Securities (002939.SZ) experienced a challenging first half of 2024. Like many other small brokerages, its self-operated business accounted for over 50% of its revenue. The firm's operations were heavily impacted due to the weak stock market and stringent regulations, reflecting the broader industry's struggles.
- Shanxi Securities
山西证券 - Shanxi Securities faced a tough 2024 first half, with a significant reliance on proprietary trading. Their proprietary trading revenue constitutes over 50% of total revenue. The firm has categorized its business into five areas: Wealth Management, Corporate Finance, Asset Management, FICC, and Equities. The FICC division handles fixed income, delegated investment, bond market-making, advisory services, and derivative trading.
- Industrial Securities
兴业证券 - The article does not mention Industrial Securities directly. It provides an overview of the weak performance of Chinese securities companies in the first half of 2024, noting that major and mid-sized firms faced significant challenges, particularly in equity markets, while focusing more on bond investments.
- Guoyuan Securities
国元证券 - Guoyuan Securities reported a net profit of 914 million yuan in H1 2024, with a significant 91.7% increase in proprietary trading income, accounting for 34.45% of revenue. The firm's financial investment scale reached 91.2 billion yuan, with bond investments at 72.14 billion yuan, both seeing over 20% growth.
- Zheshang Securities
浙商证券 - Zheshang Securities saw a decline in both revenue and net profit in the first half of 2024. Their net profit dropped nearly 14%, with self-operating net income decreasing significantly, accounting for only 7.18% of revenue. As of mid-2024, their equity self-operated portfolio increased by 17.4%, while the fixed-income self-operated portfolio decreased by 6.8%.
- CITIC Securities
中信建投 - CITIC Securities faced significant declines in its key indices in the first half of 2024. Its investment banking income dropped by 54.62% year-over-year, although its proprietary business net income showed resilience with over 17% growth. Despite challenges in the domestic market, CITIC Securities International achieved revenue and net profit growth of 22.22% and 68.4%, respectively, by expanding into markets such as Japan and Southeast Asia.
- Caitong Securities
财通证券 - The article does not provide specific information about Caitong Securities. It focuses on the overall performance of the securities industry in 2024, highlighting trends and data from various other firms.
- Soochow Securities
东吴证券 - The article mentions Soochow Securities (601555.SH) as one of several brokerage firms whose bond investment portfolios are predominantly transaction-based rather than for long-term holding. This strategy may explain its underwhelming performance in the first half of 2024.
- First Capital Securities
首创证券 - The article does not provide specific information about First Capital Securities. It focuses on the overall performance and challenges faced by various notable Chinese brokerage firms during the first half of 2024. Key themes include market conditions, the impact on brokerage revenues and profits, regulatory changes, and the shift towards debt market investments.
- Guosen Securities
国信证券 - Guosen Securities (000728.SZ) posted a 10% YoY increase in net profit for H1 2024, reaching 914 million yuan, driven by solid performance in proprietary trading. Their proprietary trading net income soared by 91.7%. Their financial investment reached a record high of 912 billion yuan, with bond investments making up 721.4 billion yuan, increasing over 20% YoY.
- Founder Securities
方正证券 - Founder Securities (601901.SH) experienced a 28.74% year-on-year drop in brokerage business fee net income in the first half of 2024, with net incomes for agency, seat, and distribution businesses falling by 0.9%, 22.1%, and 35.4% respectively. Brokerage business revenue, accounting for over 40% of its total revenue, faced significant pressure.
- East Money
东方财富 - East Money, often referred to as "券茅," faced significant challenges in the first half of 2024. The company's seat leasing income dropped by 78%, primarily due to the sluggish trading activity and the impact of new trading commission regulations. This decline reflects the broader downturn in brokerage businesses, impacted by low market activity and regulatory changes.
- China International Capital Corporation
中金公司 - China International Capital Corporation (CICC) is highlighted in the context of an industry facing challenges. The article mentions a project involving CICC, where Shanghai Suiyuan Technology Co., Ltd. entered guidance registration with the Shanghai Securities Regulatory Bureau, with CICC as the guidance institution. This underscores CICC’s involvement in significant market activities despite the downtrend in overall IPO issuance.
- China Merchants Securities
招商证券 - The article does not specifically mention China Merchants Securities. However, it provides a comprehensive analysis of the challenges and dynamics faced by Chinese securities firms in 2024, including market performance, regulatory impacts, and the varied fortunes of different companies within the sector.
- Minsheng Securities
民生证券 - Minsheng Securities' Minsheng Securities' notable achievement is that the IPO underwriting project for NovaStar (301589.SZ) resulted in an underwriting sponsorship fee of 94.71 million yuan. However, in the overall market context, many brokers are experiencing a decline, and Minsheng's performance is similarly constrained.
- Ping An Securities
平安证券 - The article does not mention specific details about Ping An Securities. It primarily focuses on the performance and challenges faced by various listed securities companies in China for the first half of 2024, touching upon aspects such as self-operating income, brokerage business pressures, and industry mergers and acquisitions.
- Founder Group
方正集团 - Founder Group participated in the judicial restructuring of Peking University Founder Group, acquiring its securities segment. The entity under its control, Founder Securities, has seen involvement in the rapid consolidation occurring in China's securities industry as regulatory and market pressures reshape the sector.
- Credit Suisse Securities
瑞信证券 - Credit Suisse Securities' acquisition by BNP Paribas fell through due to Credit Suisse's crisis and its "one participant, one control" restriction. Beijing's state-owned enterprises then expressed interest, with Beijing Capital possibly participating via Beijing Financial Holdings. Regulatory and national security risks are areas of focus.
- Guotai Junan Securities
国泰君安 - Guotai Junan Securities (601211.SH/02611.HK), one of China's leading brokerages, witnessed management reshuffles, sparking market speculation about potential mergers with Haitong Securities. This joins previous merger trends among leading brokers as the sector navigates industry consolidation and increased competition.
- Haitong Securities
海通证券 - Haitong Securities faced significant challenges in the first half of 2024, with both revenue and net profit attributable to parent company shareholders experiencing drastic declines of 47.76% and 75.11% respectively. This highlights the broader struggle within the brokerage industry amid a weak stock market and stricter regulations.
- Oriental Securities
东方证券 - Oriental Securities' wealth management and futures business revenues contributed 41.99% of the company's total income in the first half of 2024. However, the business posted a loss with revenues of 4.097 billion yuan and operating costs of 4.349 billion yuan. Meanwhile, the company's securities sales and trading segment yielded a high operating profit margin of 84.69%.
- Galaxy Securities
银河证券 - In 2024, Galaxy Securities (601881.SH/06881.HK) aimed to enhance its internationalization by rebranding its fully-owned subsidiary, Galaxy CIMB, to "Galaxy Overseas." Chairman Wang Sheng emphasized the importance of international presence in building a top-tier investment bank.
- Wanhe Securities
万和证券 - Wanhe Securities is being acquired by Guosen Securities. On August 21, Guosen announced plans to acquire a 53.0892% stake in Wanhe from its current owner, Shenzhen Capital Group, thereby gaining control of the company. Guosen Securities has paused trading since August 22 to finalize the deal.
- Since October 2023：
- Central Financial Work Conference and guidelines from the CSRC highlighted the need to cultivate world-class investment banks, aiming to establish two to three international competitors by 2035.
- End of 2023：
- The scale of bond advisory services provided by securities firms reached approximately RMB 450 billion.
- First half of 2024：
- Sluggish stock market and stricter regulations lead to bleak mid-year performances for brokerages.
- First half of 2024：
- Primary and secondary A-share markets exhibited sluggish performance; major indices in the secondary market all recorded declines.
- Late May 2024：
- ZHAO Ran, Chief Analyst at China Securities, reports the proportion of stock holdings in proprietary trading portfolios decreased to around 7%-8%, while bonds accounted for 65%-70%.
- By mid-2024：
- Citic Securities' total assets were about 1.5 trillion yuan, with financial investment assets sized at 773.79 billion yuan, a year-on-year increase of approximately 17.35%.
- End of June 2024：
- Scale of securities firms' allocations to interest rate bonds, credit bonds, and interbank certificates of deposit reached RMB 2012.1 billion, RMB 1938.5 billion, and RMB 296.7 billion, respectively.
- End of June 2024：
- Overall bond allocation scale of securities firms was approximately between CNY 4.3 trillion and CNY 4.5 trillion, a doubling compared to the same period in 2019.
- By August 29, 2024：
- 28 out of 43 listed securities firms had disclosed their semi-annual reports. These 28 A-share listed securities companies reported a total net profit attributable to shareholders of the parent company amounting to 41.825 billion yuan, a year-on-year decline of nearly 20%.
- As of August 29, 2024：
- 28 listed brokerages reported total assets of approximately 7.54 trillion yuan, of which financial investment assets amounted to 3.77 trillion yuan.
- 2024：
- Projection for the bond advisory services business scale to grow to RMB 600 billion.
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