December 29, 2024 44 Comment

Brokerage Performance Set for Recovery

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The recent quarterly reports from publicly listed securities firms have revealed a favorable shift in their financial performanceAn analysis of these reports indicates a general recovery trend, characterized by a noticeable reduction in declines in both operating revenue and net profitThis improvement is particularly prominent in the third quarter, showcasing a rebound in financial healthThe number of firms achieving a dual increase in operating income and net profit has risen to 28, underscoring a robust turnaroundNotably, larger securities firms have demonstrated marked improvement in their operational results, while smaller firms reveal a mixed performance, with some experiencing significant profit growthOverall, the recovery in performance can be attributed to a combination of a low baseline from previous underperformance and an uptick in investor confidence due to new policies aimed at stimulating growth.

Since late September, following the directives of the Central Political Bureau's meeting concerning new incremental policies, the financial sector has rolled out a series of strategic measures, some of which have exceeded market expectations

The primary objectives of these policies include stabilizing growth, ensuring expectations, expanding domestic demand, enhancing living standards, and mitigating risksThe result has been a swift uptick in the A-share and H-share indices, suggesting a rapid resurgence in stock trading activities, which in turn boosts revenues for brokerage services and proprietary trading.

This optimism is not limited to the short termThe long-term outlook for the recovery of securities firms appears equally favorableWith a comprehensive package of incremental policies being rolled out, various government sectors—including development, finance, housing, and market regulation—are also enacting policies designed to bolster economic performanceOperating within a systemic perspective, these policies are well-coordinated, with significant implementation speed and intensity, facilitating both short-term counter-cyclical adjustments and long-term economic structural optimization aimed at high-quality development

The overall trajectory of China's economic fundamentals is projected to improve significantly as these policies take effect, which will further support the brokerage sector's performance.

Historically, the stock market has often been depicted as a barometer of the economy, exhibiting a close correlation with the performance of brokerage firmsIn the current economic climate, as fundamentals improve and brokerage performance begins to recover, this marks a positive and encouraging trendFrom various perspectives, this recovery is expected to have substantial sustainability.

Looking back at the historical performance of securities firms reveals a notable pattern: during periods when China's economy shows signs of recovery and when the stock market becomes more active or trading volumes rise sharply, brokerage performance typically exhibits remarkable improvement

Presently, the upswing in brokerage performance aligns perfectly with these historical characteristicsThe ongoing implementation of a comprehensive suite of policies is effectively driving the economy towards renewed growthAdditionally, with mainland China's stock market still relatively undervalued, there exists significant potential for recovery and appreciation, presenting considerable appeal for investorsAgainst this backdrop, the strengthening performance of brokerage firms is underpinned by a solid foundation.

On one hand, the improvement in economic fundamentals provides fertile ground for the expansion of various brokerage servicesAs corporate profits gradually improve, the demand for public financing is expected to rise, creating new growth opportunities for investment banking services

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Whether it involves initial public offerings (IPOs), refinancing, or mergers and acquisitions, all these endeavors are likely to receive a boost amid the economic recovery, leading to substantial underwriting and advisory fees for brokerage firmsParticularly in the context of emerging industries' rapid growth, many innovative companies are eager to harness the power of the capital market to achieve breakthroughs, creating a wealth of opportunities for brokerage firms’ investment banking divisions.

On the other hand, the level of trading activity in the stock market directly impacts brokerages' earnings from brokerage servicesWhen market conditions improve and investor confidence grows, trading volumes tend to increase dramatically, consequently boosting commissions earned by brokerages

Moreover, increased market activity can stimulate demand for margin trading and securities lending, allowing brokerages to earn additional income through interest charged on these services, thus further broadening their revenue streams.

When synthesizing these observations, it becomes evident that China's commitment to achieving a high level of technological self-reliance, building a modern economic system, and improving capital market functions will require active participation from brokeragesThere is a pressing need for comprehensive reform in capital market financing, addressing the bottlenecks that limit the inflow of long-term capital and enhancing the inclusivity and adaptability of market structuresSuch developments offer brokerage firms valuable policy guidance and support, promoting substantial advancements within the industryIn light of the burgeoning performance recovery, firms must leverage their services, capitalize on growth opportunities, strengthen operational management, refine product offerings, enhance research capabilities, and incorporate technological applications to continually improve operational quality and efficiency

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