Source: Brokerage China Author: Qu Hongyan Recently, China Yangtze Power hit a historical high and once again showed the slow bull stock trend of "tripling in ten years". The slow bull market has left behind many passers-by and brought good returns to the steadfast investors. It is "rare for those who triple in one year to be like carp jumping over the dragon gate, while those who double in three years are few and far between." On the other end of the investment world, however, violent collapses are also deafening, with many financial products suspected of "Ponzi schemes" ceasing payments, leaving investors with no hope of recovering their investments. Both positive and negative cases illustrate the importance of forming a suitable mentality towards money in one's lifetime; otherwise, sooner or later, you will divorce yourself from your money. "I call this the money mind, a person's IQ can reach 120, 140, or even higher levels, and perhaps some people's minds are good at doing one thing, while others are good at doing another. They can do things that most ordinary people can't do. But I know some very smart people who make very foolish decisions because they lack the money mind." Buffett once said so. The so-called money mind refers to believing in common sense, believing in compound interest, being cautious and rational, thinking independently, prioritizing security over return, not dealing with people with questionable character, not easily guaranteeing for others, not believing in windfall profits, and not trying to cross legal norms for extra benefits. In today's world of ubiquitous information, everyone's wealth may become the "prey" of those with ulterior motives. Only with the money mind, can one form good behavior habits and shield oneself from separating from one's wealth. Do not entrust your wealth easily. Wealth is easy to lose but hard to accumulate, and trust is a vital reason leading to the rapid loss of wealth. "Do not allow anyone else to manage your business unless you can watch their every move closely and understand their behavior; or you have strong reasons to believe in their character and ability. For investors, this criterion determines when you can let someone else make investment decisions for you." Graham's criterion written eighty years ago is so clear. Almost all the investors who lost their wealth in the financial products have violated the above two criteria. They did not have the ability to closely supervise the whereabouts of their funds, nor did they have sufficient reasons to believe in the character of the product issuers. They easily invested their own wealth solely based on others' glib tongue and a piece of commitment paper. They did not act as gatekeepers of their own wealth and ended up with nothing left even if the government punished the wrongdoers. "An ounce of prevention is worth a pound of cure." This is a phrase Munger often says. Destiny must be in one's own hands, and investors with a suitable money mind will try their best to find suspicious points in their investments to protect the safety of their principal. For example, whether the manager is trustworthy, whether the underlying assets are profitable, whether oneself can timely monitor the risks in the investment process, and whether the sales staff is obtaining large commissions. As long as any unreliable signs are found, these investors firmly will not invest their money. Do not desire to get rich quick. As in the capital market and anywhere else, making money is not easy, and desiring to get rich quick will lead to quick loss of wealth. In the capital market, the desire to get rich quickly often leads to investors over-allocating specific stocks, industries, or assets at the worst time. For example, buying high-risk stocks that can gain huge returns once an adventure succeeds, but the chance of success is very small, also known as "whispering stocks" by legendary fund manager Peter Lynch. "They often tell investors a story with explosive effects. These 'whispering stocks' have a hypnotic effect on people, and it is easy for you to believe that the story the company tells has an emotional appeal that can easily confuse you." This is like hearing a very tempting "sizzling" sound, making you salivate, but you did not notice that there is no steak on the grill. In the eyes of investors who lack the money mind, stable yield provided by blue chips such as China Yangtze Power cannot meet their demands. However, historical experience clearly shows that buying stocks lacking in safety solely based on imagined high yields is unwise. The long-term average investment return of general stocks is 9%-10%, which is also the average investment return of stock indexes in history, a benchmark to measure one's investment performance and the benchmark to measure fund investment performance.
Author: Chen Ming.

On October 7, in the Hong Kong stock market, China-affiliated brokerage stocks continued to rise. As of now, the China-affiliated brokerage sector has risen by over 12%, reaching a new historical high. $CMSC (06099.HK)$Please use your Futubull account to access the feature.$CICC (03908.HK)$ Rose over 20%, $CSC (06066.HK)$ Rising more than 17%. $DFZQ (03958.HK)$ Rises more than 15%, $GUOLIAN SEC (01456.HK)$ $EB SECURITIES (06178.HK)$ Up more than 10%, $GF SEC (01776.HK)$ The price rose by more than 8%.

In the previous 8 trading days, China-affiliated brokerage stocks have already experienced a significant increase, with the China-affiliated brokerage index cumulatively rising by 120%. So, after experiencing this round of increase, how will the future of brokerage stocks unfold?

Brokerage stocks remain active.

On October 7th, despite significant overall volatility in the Hong Kong stock market, China-affiliated brokerage stocks remained active, with Citic Securities, China Merchants, guolian, Everbright Securities, and others hitting historical highs intraday.

As of around 3 p.m., swhy surged by over 33%, China Merchants, China International Capital Corporation rose by over 20%, Citic Securities rose by over 17%, Orient Securities surged by over 15%, guolian rose by over 11%, Everbright Securities rose by over 10%, GF Securities rose by over 8%.

In the previous 8 trading days (September 24 to October 4), the China-affiliated brokerage sector accumulated a 120% increase. Among them, Swhy's increase exceeded 750%, China Merchants surged over 230%, CC Securities rose nearly 200%, Guotai Junan i soared over 180%, CSC and Guolian Securities both rose by more than 155%, CICC, Citic Securities, Orient Securities, Everbright Securities, and China Galaxy all had increases exceeding 130%.

During the National Day holiday, Hong Kong stocks continued to maintain a high prosperity. From October 2nd to 4th, the China-affiliated brokerage stocks all rose by over 30%, with some even exceeding 100%. After this round of increase, the premium rate of AH stocks of brokerage firms has significantly narrowed. According to Wind data, on October 4th, the average premium rate of AH stocks of brokerage firms was 71.98%, a decrease of 78.73 percentage points from September 30th. Only 4 brokerage firm stocks had premium rates over 100%, reduced from 7 before the holiday. HTSC's AH stock premium rate reached -1.43%, with H-shares surpassing A-shares, while the premium rates of China merchants and CITIC Securities' AH stocks also decreased to 6.98% and 8.3%, respectively. H-share prices are about to catch up with A-shares. The smaller the premium of AH shares, the higher the relative investment cost-effectiveness of A-shares.

The recent rise in brokerage stocks is also a restoration of valuation. According to Wind data, at the beginning of 2024, the PE ratio of brokerage firms fell below 20 times. By September 30, the PE ratio of brokerage firms had risen to 30.95 times, nearly 50% higher than the median of 21.99 times in the past 10 years, but still far below the PE ratio of 59.22 times in December 2014. The average PB ratio of brokerage firms in the past 10 years is 1.86 times, with a median of 1.74 times. By September 30, the PB ratio of brokerage firms rose to 1.53 times, still relatively low, compared to the high of 5.25 times in April 2015.

Some brokerage analysts point out that the AH valuation of the brokerage sector is still at low percentiles of 20%-60% and 60%-90% over the past 10 years, with some AH premiums at their lowest points in the past 10 years. They are bullish on the investment opportunities in the brokerage sector under the positive feedback loop of the market.

Is there potential for further valuation improvement?

On September 24, the heads of the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission jointly held a press conference, announcing a series of bullish policy measures, greatly boosting market confidence. Under the impact of the new policies, external funds rushed into the market, leading to a continuous rise in brokerage stocks on the A-share and Hong Kong stock markets since September 24.

Specifically, on September 24, the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission proposed several measures to boost the capital markets, including: 1. the issuance of RMB 500 billion in initial swap instruments in operation and RMB 300 billion in special repurchase agreements for share buyback and enhancement. 2. support for eligible insurance institutions to establish private equity securities investment funds. 3. vigorous development of equity public funds, and promotion of innovation in broad-based fund products.

On September 26, a Political Bureau meeting proposed several policies related to the capital markets, including: 1. issuing and using special super-long-term national bonds and local government special bonds. 2. lowering the reserve requirement ratio. 3. promoting the stabilization of the real estate market. 4. making efforts to boost the capital markets, strongly guiding the entry of medium to long-term funds into the market. Support for listed companies in mergers and acquisitions, steady promotion of public fund reforms, and more.

Guotai junan pointed out that market revitalization will not only improve the profitability of brokerage firms, but also accelerate the construction of first-class investment banks, continuing to be bullish on the brokerage sector. First, as series of policies are implemented, the capital markets are significantly boosted in trading activities, bringing significant growth to brokerage firms' brokerage, asset management, margin trading, and other main businesses, thereby enhancing the profitability of brokerage firms. Second, the long-term perspective of supply-side reform remains the industry's main theme. The timetable and plan for the construction of first-class investment banks have already been proposed, and recent incremental policies in the capital markets have put forward new requirements for brokerage firms in terms of serving medium and long-term capital inflows and providing high-quality investment banking services. High-quality brokerage firms with outstanding professional capabilities and stable regulatory compliance are expected to accelerate transformation during the industry's period of opportunity and expedite the construction of first-class investment banks.

Haitong Securities pointed out in its latest research report that in reviewing the previous market trends, two main patterns were discovered: first, when the equity market enters a bull market, it will drive the expansion of brokerage businesses, raise the valuation center, and cause the stock prices of brokerage firms to rise. Second, the relaxation of regulatory policies and innovative reforms in the capital market bring incremental expectations to brokerage businesses, driving the brokerage market to deliver excess returns.

As the leader of the bull market, the securities sector experiences a significant increase in trading activity when the market sentiment is positive. Brokerage firms directly benefit from increased trading volume, which will enhance commission income, and the market's uptrend will also bring substantial profits to proprietary trading business.

Haitong Securities believes that with the improvement in liquidity and the introduction of positive policies, the valuation of brokerage firms is expected to further increase along with market improvements.

HTSC also stated that the brokerage sector is currently enjoying a double boost from "strong policy support + positive feedback loop". With a variety of coordinated reforms such as the People's Bank of China's innovative structural monetary policy tools, the Political Bureau meeting first proposing to "earnestly boost the capital markets", and the long-term capital inflows reforms, the Hong Kong stock market has been active around the National Day holiday, breaking the historical record with daily turnover exceeding 500 billion Hong Kong dollars. The increase in new accounts is significant, with continuous net inflows into ETFs, speeding up capital inflows. On October 8th, the State Council Information Office will hold a press conference to systematically implement a package of incremental policies, which may continue to boost market sentiment. The brokerage sector remains relatively low in positions, strong policy support, active trading contributing to a positive feedback loop. It is recommended to seize investment opportunities under the return of market confidence, focus on high-quality top undervalued brokerage firms, brokerage firms with expectations for mergers and restructuring, and those with high brokerage and investment performance elasticity, benefiting from the recovery of market sentiment.

Editor / jayden