Hong Kong brokerage stocks are more bullish than A shares, partly because A shares are currently closed while Hong Kong stocks are trading normally without price limits. Additionally, A-shares and H-shares are heavily discounted, resulting in lower valuations for the same stocks in Hong Kong. Under conditions of ample liquidity, the price difference will quickly narrow. Therefore, the stock prices of H-share brokerages may rise rapidly in the short term, but this also means that the rapid increase may soon reach its peak, with a potentially shorter duration.

Based on the review of several bull markets, the beta attributes of brokerage sector are stronger, experiencing synchronized rises and falls, and sharp fluctuations. Later, there will be differentiation based on fundamentals, with varying degrees of pullback. Some individual stocks may never return to their high points in 2015. Industry analysts suggest that for individual investors facing difficulties in stock selection, cautious consideration is needed when chasing highs, and brokerage ETFs may be a better choice.

Why are brokerage stocks the vanguard of a bull market?

Since the end of September with the convening of the State Council meeting and Central Political Bureau meeting, A-shares and Hong Kong stock markets have surged, with brokerage stocks standing out as the "vanguard of the bull market." In the last 5 trading days before the holiday, the brokerage index has accumulated a growth rate of 35.71%, with East Money Information achieving an accumulated growth rate of 89.19% and Citic Securities seeing an increase of 40.85%.

Reviewing several historical bull markets, the most obvious characteristic of brokerage stocks' performance is that they rise faster and more vigorously than other industry sectors, often leading the market advance, earning their title of the bull market's "vanguard."

Examining the reasons, several key factors that drive brokerage stocks include but are not limited to: liquidity in the funding market, increased trading volume, and improvements in fundamentals.

First and foremost, among the driving forces of each bull market are indispensable factors such as ample liquidity, improved market liquidity, increased investment intensity, and capital inflows into the stock market to raise valuations, essentially profiting from the liquidity premium.

Furthermore, in a bull market, the trading volume of the capital markets expands, the turnover ratio increases, the number of account openings for securities and finance and securities lending increases, driving the corresponding increase in brokerage securities trading commissions, as well as the increase in revenue from margin trading, directly benefiting brokerage performance in the bull market, with significant improvement in fundamentals.

In addition, as brokerages operate with leverage through capital and self-investment business, they have a leveraged effect. Once the market experiences a general rise, investing in brokerage stocks enhances the index effect, sometimes with a leveraged effect. This is why brokerage stocks often outperform other sectors in a bull market.

Are AH stocks discounted, with Hong Kong stocks showing a stronger uptrend?

Similarly, in terms of brokerage stocks, the uptrend in Hong Kong stocks is stronger, with larger gains. On the last trading day before the holiday, apart from $HAITONG SEC (06837.HK)$Please use your Futubull account to access the feature.$GTJA (02611.HK)$ trading being suspended, all 48 constituent stocks of the CSI Securities Co.,Ltd. Index saw limit-up. While on October 2nd, during the A-share market break, Hong Kong brokerage stocks performed remarkably. $SWHYHK (00218.HK)$ Rose by 206% on the same day, $CMSC (06099.HK)$ Increased by over 80%, $DFZQ (03958.HK)$Please use your Futubull account to access the feature.$CSC (06066.HK)$Please use your Futubull account to access the feature.$GUOTAI JUNAN I (01788.HK)$ Rising more than 40%, $CITIC SEC (06030.HK)$Please use your Futubull account to access the feature.$GUOLIAN SEC (01456.HK)$ The increase is also close to 40%.

If we add the days before the holiday, during the period from September 24 to October 2, in just 6 trading days, the increase of Swhyhk reached 719%, Guotai Junan i also rose by 189%, China Merchants Securities increased by more than 170%, CSC, Citic Sec, and Orient Securities all rose by more than 130%,$CINDA INTL HLDG (00111.HK)$and$CC SECURITIES (01375.HK)$Please use your Futubull account to access the feature.$CICC (03908.HK)$Please use your Futubull account to access the feature.$GUOLIAN SEC (01456.HK)$Please use your Futubull account to access the feature.$CGS (06881.HK)$Please use your Futubull account to access the feature.$GF securities (000776.SZ)$ The increase has all exceeded 100%.

Overall, the cumulative increase of A-share brokerage sector is not as good as that of Hong Kong stocks. This is partly due to the influence of Hong Kong stocks trading normally with no restrictions on price fluctuations. However, more importantly, AH stocks are heavily discounted, and Hong Kong stocks have lower valuations.

As of October 2nd, brokerage stocks with AH stock price spreads of more than double include Guolian Securities, China International Capital Corporation, China Securities Co.,Ltd., CC Securities, Everbright Securities, Guotai Junan, among others. Among the leading brokerage firms, Citic Securities has the smallest AH stock price spread, with an A-share premium rate of only 5.28%.

Therefore, with abundant liquidity, the mentality of incremental funds entering the market for rapid deployment is obvious. This will quickly narrow the price difference, meaning that brokerage H shares may experience a rapid increase in stock prices in the short term, but it may quickly reach a peak, with a relatively short duration.

Sectors rise and fall together, ETFs are the preferred choice.

It is worth noting that as the leader of the bull market, brokerage stocks play the role of the "vanguard", performing outstandingly in the early stages of a bull market. However, later on, there may be divergences due to differentiation in individual stock performances, with some individual stock corrections being very severe.

Reviewing several bull markets in history, brokerage stocks generally outperform the overall market, especially in the early stages of the bull market. In the major market uptrend that began in 2014, the non-banking financial sector surged by 144.03% from July to December, ranking first. During the small bull market from January to June 2019, the non-banking financial sector rose by 43.8%, second only to the food and beverage sector.

However, in the later stages of the bull market, such as in 2015, the performance of brokerage stocks was not as good as other sectors, and with market bull-bear transitions, the magnitude of decline will be larger. Industry analysts point out that the performance of brokerage stocks is characterized by rapid ups and downs, general increase in the early stage, differentiation in the later stage, and some brokerage stocks may never return to the highs of 2015. Therefore, for individual investors facing stock selection challenges, caution is needed when chasing highs, and brokerage ETFs may be a better choice.

Editor/Somer