According to Zhitong Finance APP, Citic sec released a research report stating that under the current environment of warming funds and policy shift, the securities sector is expected to achieve significant improvement in fundamentals compared to the previous quarter and year-on-year, leveraging high trading volume, large margin scale, and low performance base advantages. Combined with the current valuation level, the industry's valuation still has room for improvement. Focusing on the long-term main line of restructuring and international business development within the securities industry.MergerIt is recommended to invest in companies with long-term alpha attributes and those with limited short-term retracement space and stable fundamentals. In the short term, it is suggested to actively focus on companies expected to demonstrate performance resilience in Q4 2024 through brokerage and proprietary trading, and which currently have reasonable valuations.

The main points of the Citic Securities research report are as follows:

A new round of capital markets reform has been implemented, relaxing capital constraints and enhancing market vitality.

Since September 2024, a new round of capital market reforms has been successively implemented, represented by the capital leverage reform in the securities industry, new regulations on swaps and relending, and the three major measures from the CSRC on mergers and acquisitions, market cap management, and long-term funds entering the market. This round of capital market reforms has demonstrated strong policy coordination. Capital leverage reform opens up space for securities firms to expand their balance sheets, laying a foundation for them to fully respond to the new regulations on swap convenience. The relending policy provides liquidity support for the effective execution of market cap management measures such as increase stake & buy back in the new market cap management regulations. The new rules on mergers and acquisitions have significantly enhanced market vitality, providing selectable investment directions for funds entering the market through swaps. The implementation of new fiscal support policies will better coordinate with the current capital market reform policies, promoting the stable and healthy development of capital markets in the long term.

Policy reforms solidify fundamental expectations, with three phases showing profit improvement.

Under the ongoing policy reform aimed at strengthening the stability mechanisms of the capital markets, market activity levels have significantly increased, and csi all share investment banking & are expected to see multi-level improvements in fundamentals. Firstly, the brokerage business and interest income benefit from active markets and are expected to achieve quarter-on-quarter improvements in the short term. In the context of a continuing bull market, csi all share investment banking & is likely to improve revenue from asset management business with increased AUM and returns from proprietary equity business. In addition, the chairman of the CSRC, wu qing, has stated that 'strong supervision does not mean strictness without limits' and 'coordinating the financing side and investment side reforms to gradually achieve normalization of IPOs,' which means that the investment banking equity financing business is likely to gradually recover in the context of a warming capital market.

The year-on-year performance growth rate for Q4 2024 is expected to rebound significantly, with the roe for the securities industry likely reaching 5.2% in 2025.

Thanks to the rapid increase in market turnover since September 2024 and the expansion of margin trading and financing scales, listed brokerage profits in the second half of 2024 are expected to reach 73.9 billion yuan, representing a 15.6% increase compared to the first half. The year-on-year growth rate of net income for the securities industry in 2024 is projected to improve from -22.08% in the first half to 0.03%. Looking ahead to 2025, under the key assumptions that the sse composite index reaches 3500 points, daily average stock transaction volume reaches 1.2 trillion, equity financing volume hits 500 billion, and margin trading balance reaches 1.8 trillion, the net income for the securities industry in 2025 is expected to reach 161.2 billion yuan, a year-on-year increase of 16.98%, with the industry roe likely reaching 5.2%, and both profit scale and roe levels exceeding those of 2022.

Mergers and acquisitions continue to advance, with market-based and administrative mergers enhancing the efficiency of industry resource allocation through multiple channels.

With the support of various policies, mergers and acquisitions in the securities industry are expected to accelerate. About ten quality leading brokerages are likely to form through market-based mergers and acquisitions, identifying quality acquisition symbols from a foundation of customer resources and advantageous business areas, while also exploring quality acquisition targets from the perspectives of corporate governance capacity and shareholder returns. Meanwhile, 2-3 top-tier international investment banks will need to match the scale of business and asset volume of Western investment banks like goldman sachs and morgan stanley, thereby requiring integration among large institutions. On one hand, administrative measures from top to bottom need to promote mergers under the same control, while on the other hand, complete restructuring plans must be designed for business line mergers, organizational restructuring, and personnel management. Additionally, after the formal implementation of the 'Measures for the Management of Business Qualifications of Securities Companies', the industry structure is expected to progress towards 'large and medium-sized brokerages expanding nationwide with complete licenses, and small brokerages operating regionally with distinct characteristics.'

Internationalization is steadily developing, with fundamentals and policies working in synergy to open up long-term growth space for brokerages.

Brokerages’ international business is accelerating, becoming an important component of brokerage performance. Important meetings and policies such as the Central Financial Work Conference, the new 'Nine Measures', and the 20th National Congress's third plenary session have clearly articulated the direction for the internationalization of finance. In the Hong Kong market, Chinese-funded brokerages still do not rank in the first tier in wealth management, asset management, and investment trading. Actively supporting the strategy for the internationalization of the renminbi and improving the supply of high-quality renminbi-denominated financial assets are important areas for the development of Chinese-funded brokerages. The implementation of the 'Cross-border Wealth Management Connect' pilot program will bring opportunities for cross-border wealth management business. For the broader overseas market, Chinese-funded brokerages should seize three major opportunities: overseas institutions allocating renminbi assets, financial services for Chinese companies going abroad, and internet plus-related brokerage business in Southeast Asia, further improving their international business layout and accelerating the establishment of a world-class investment bank.

Risk factors: The risk of a decline in trading volume in the A-share market, the risk of a downturn in the scale of equity financing in investment banking, the risk of losses in investment business, the risk exposure in credit business, and the risk that capital market reforms do not meet expectations.