The Zhitong Finance app learned that China Merchants Securities published a research report saying that in 2023, the securities industry's overall net revenue and profit was steady, and the brokerage index rebounded upward in the second half of the year, continuing the cyclical fluctuation trend. Policy attitudes at the mid-year Politburo meeting and the financial central financial conference have improved markedly, and the capital market has ushered in a new reform cycle. Looking ahead to 2024, under policy guidance, the brokerage business will accelerate, and the investment banking business will be short and quality first; investment-side policies will drive product innovation and help the brokerage business break the game; volume and price increases are stable, and asset management revenue contributions are expected to rise; regulation is tight, orderly development of self-employment, and steady credit progress. Overall, with policy support, easy liquidity, and economic improvement, performance is expected to grow steadily under a low base in 2024.
The securities industry will continue to fluctuate cyclically in 2023
The secondary market was under pressure during the year, indices declined, and market trading was lukewarm; supervision was phased in, and the pace of equity financing slowed down. Against this background, the credit of brokerage and investment banks in the securities industry was under pressure in the first three quarters. Self-employment benefited from a strong recovery in the bond bull market in the first half of the year, a steady increase in overall net revenue and profit, and a slight increase in annualized ROE and leverage multiples. In terms of stock market performance, the index followed the market at the beginning of the year, and the policy was prepared in the middle of the year, leading a “trumpet” rebound, and continued to gain strength in the fourth quarter, helping the overall sector to rise steadily.
Policy attitudes have improved markedly, capital market position has improved marginally, and brokerage business has accelerated development
After many years, the Politburo meeting proposed “revitalizing the capital market and boosting investor confidence,” and the Central Financial Work Conference proposed a “financial power,” fully demonstrating the importance that the Party and the state attach to the capital market. Risk control indicators for brokerage firms have been revised to relax brokers' leverage; regulations encourage leading brokerage firms to become better and stronger through mergers, acquisitions and restructuring, etc., and the industry may be reshuffled again. Comprehensive investment, financing, and asset-side policies stimulate implementation beyond expectations and continue to catalyze the brokerage sector.
The investment banking business was short and long
The rebalancing policy of the primary and secondary markets, and the declining pace of stock finance projects is dragging down the overall income of investment banking business. In the long run, the increase in equity finance and debt finance will concentrate on “major strategies, key areas, and weak links”, and the structure will continue to be optimized to help cultivate new economic momentum and advantages; in terms of stock, the obstacles to the merger, acquisition and restructuring system will be removed, and the improvement and strengthening of listed assets will be accelerated, and bottom-line thinking will drive the risk of the bond market to clear up.
Policy warmth is blowing frequently to overcome the brokerage business dilemma
Huijin has taken steps to increase its holdings in the four major banks and ETFs, halve stamp duty on securities transactions, and accelerate the entry of long-term capital into the market. Stimulated by a series of measures, the market has stabilized upward, risk appetite has been restored, or the income from purchasing securities on behalf of securities may rise. ETF issuance has been accelerated, and new equity fund products have been introduced to continue to meet the growing wealth management needs of investors. The financial management business is about to set sail.
The asset management business is moving forward with twists and turns
In the short term, market conditions are sluggish, and in the short term, falling rates put operating pressure on small and medium-sized fund companies and companies with relatively high equity fund sizes; in the long run, the implementation of the “one parameter, one control, one license” policy will be implemented, and future active management products and rising supply of public fund products will provide business growth; rate reforms have been fully implemented, effectively boosting the investment enthusiasm of citizens. Overall, stable volume and price increases will boost the contribution of asset management business to overall brokerage revenue.
Tight and tight, self-operated development in an orderly manner
On the one hand, the revision of risk control index standards and relaxation of leverage will help high-quality brokerage firms to use expansion to drive performance growth, increase profits, and boost the ROE center; on the other hand, the establishment of a “strong supervision” attitude towards derivatives business is expected to change the mixed situation in the market, and the self-operated departments of high-quality brokerage firms are expected to stand out.
Steady development of credit business
In terms of Liangfinance, the central bank bucked the trend, downgraded the level twice, maintained a relaxed liquidity environment, reduced market capital costs, and stimulated Liangfinance transactions; regulated and lowered financing security deposits to promote target expansion. Warm winds blew frequently, and relaxed the leverage limits of Liangfinance. In terms of equity pledges, the overall risk of stock quality is clear. As the market improves, stock returns will no longer be a “burden” for credit business.
Steady growth in industry performance under a low base in 2024
The current policy direction lays the foundation for the overall policy environment in 2024. It is expected that 2024 will continue to deepen capital market reforms, attract more medium- and long-term capital into the market, and active capital market policies will continue to gain strength to support market investment activity and risk appetite; monetary policy is expected to remain relaxed, support steady macroeconomic growth, further improve market risk appetite, and continue to improve stock market capital in 2024.
Investment advice:
Policies and the core catalysts of liquidity resonate, and the prosperity of the capital market and securities industry is expected to continue to recover in the context of a low base. The core catalysts resonate, the securities industry's prosperity is expected to continue to recover, and the brokerage sector is expected to be catalyzed in valuation. China Merchants Securities continues to recommend the brokerage sector, and favors high-quality companies in individual stock selection.
Risk warning:
The market has been sluggish for a long time, policy effects have fallen short of expectations, marginal policy tightening, liquidity tightening, and business rates have continued to decline.