The Zhitong Finance App learned that BOC Securities released a research report saying that the current inflection point in the valuation and fundamentals of the brokerage sector mainly needs to be improved on the demand side of the capital market. The bank predicts that in 2024, economic recovery expectations, active capital market policies, and investment-side reforms, including public offering fee reduction reforms, will be the three major driving forces driving the entry of incremental capital into the market and invigorating the capital market, which in turn will drive the improvement of brokers' fundamentals and valuations. Currently, the valuation of the brokerage sector has bottomed out, and the net market ratio is lower than the 5% fraction since 2012. There are expectations for improvement in sector valuations and fundamentals, so the left-hand layout is suitable for an inflection point.
The views of Bank of China Securities are as follows:
It is expected that favorable capital market policies will be introduced intensively, and policies are expected to support and guide the growth of brokerage firms.
In 2023, the central government policy and conference issued instructions on the financial sector several times. In October, the Central Financial Work Conference emphasized the strategic position of finance with expressions such as “finance is the lifeblood of the national economy” and “finance should provide high-quality services to promote economic and social development, promote the construction of a strong nation, and national rejuvenation,” and the strategic position of the capital market was further highlighted. Focusing on the conference's directional layout for the next stage of financial work, various capital market policies covering the financing side, investment side and transaction side are expected to be implemented at an accelerated pace in 2024, which will help introduce incremental capital and activate the equity market. According to the instructions of the conference, the policy is expected to further support the growth of investment banks and investment institutions, and guide brokerage firms of different sizes and types to form a differentiated development pattern.
Regulatory support may accelerate the merger and acquisition process of brokerage firms, and the industry pattern will further evolve towards centralization.
At the end of October 2023, the Central Financial Work Conference first proposed “cultivating first-class investment banks and investment institutions,” and after “supporting large state-owned financial institutions to become better and stronger,” according to a report by the China Securities News on November 3, the Securities Regulatory Commission indicated that “the Securities Regulatory Commission will support leading securities companies to become better and stronger through business innovation, group management, mergers and acquisitions and restructuring.” After regulations encouraged market-based mergers and acquisitions twice in 2012 and 2018, both formed a boom in brokerage mergers and acquisitions. In the current context of encouraging the intensive development of brokerage firms and restrictions on refinancing issuance, it is expected that after the current regulation proposes “cultivating first-class investment banks,” it is expected to catalyze the acceleration of the brokerage merger and acquisition process, bring structural market conditions to the brokerage industry, and drive the evolution of the brokerage industry pattern to a more centralized one.
Expectations for economic recovery and reform policies will help improve the fundamentals of brokerage firms.
Currently, the core factors in the restoration of brokers' fundamentals are on the demand side of the capital market. Expectations of economic recovery, active capital market policies, and investment-side reforms, including public offering fee reduction reforms, are the three major driving forces driving incremental capital to enter the market and revitalize the capital market. In 2024, the demand side of the capital market is expected to continue to improve, and the equity market activity will increase, which will directly drive the recovery of wealth management and institutional business needs, and it is expected that “quantitative price compensation” will be achieved. In addition, active capital will also help promote the loosening of phased restrictions on IPOs, refinancing, and securities financing businesses, and promote the release of performance in investment banks and securities lending businesses.
Risk warning: The impact of policy introduction, the international environment, and market fluctuations on the industry has exceeded expectations.