Looking ahead to 2025, with policies continuously ramping up and interest rates trending downward, market trading activity is expected to remain high, while the secondary market shows signs of recovery amidst volatility.
According to the Zhitong Finance APP, Founder Securities has released a Research Report stating that since the Financial Support for Economic High-Quality Development Conference held by the State Council Information Office on September 24, market risk appetite has been boosted and brokerages are experiencing a comeback. Looking ahead to 2025, with policies continuously ramping up and interest rates trending downward, market trading activity is expected to remain high, while the secondary market shows signs of recovery amidst volatility, along with supply-side reform in brokerages and an increase in industry concentration. It is recommended to pay attention to financial technology symbols with high trading performance elasticity and to strengthen and enhance leading brokerages.
The main viewpoints of Founder Securities are as follows:
Review of 2024: Since September 24 (the Financial Support for Economic High-Quality Development Conference), market risk appetite has been boosted, and brokerages are experiencing a comeback.
Market review: Since the beginning of 2024 (up to December 10), the brokerage Sector has risen by 38%, with performance since September 24 outperforming the Large Cap; the performance of individual brokerage stocks has varied before and after September 24, with fundamental stock selection shifting from stable profit symbols to high-elasticity symbols, while theme stock selection has shifted focus from market-oriented mergers to strengthening and enhancing leading brokerages.
Performance review: The Sector's profit in the first nine months of 2024 decreased by 6% year-on-year, while the profit for the third quarter of 2024 increased by 41% year-on-year; individual stock performance varied, with investment income becoming a decisive factor for listed brokerages' performance.
Outlook for 2025: Policies ramping up, stabilizing the stock market, while the secondary market shows signs of recovery amidst volatility.
Market Outlook: In 2025, market trading activity is expected to remain high. On one hand, since September 24, a policy mix has been effectively implemented, and the political bureau meeting on December 9 has set a tone for monetary policy being "moderately accommodative", with further declines in interest rates expected; on the other hand, "stabilizing the stock market" suggests that new funds entering the market (such as from insurance, funds, and structural MMF tools) can still be anticipated.
The performance elasticity of brokerages is promising under high prosperity: 1) Brokerage & Margin Financing Business: Market risk appetite is recovering, client fund inflow is accelerating, boosting the brokerage and margin financing business; 2) Agency & Public Fund Business: As ETF issuance picks up, it becomes a new growth point for wealth and asset management business, paying attention to fee changes; 3) Investment Banking Business: The tightening of IPOs has lasted over a year, and the October CSRC discussion mentioned "gradually normalizing IPOs", suggesting the equity business may see marginal recovery on a low base, with mergers and acquisitions contributing incrementally; 4) Investment Business: Fixed Income remains the main investment allocation direction for brokerages, and in 2024, brokerages will increase OCI allocation and reduce proprietary volatility; since the end of September, some brokerages have increased their equity allocations, and differences in allocation structure will drive the differentiation of proprietary performance in 2025.
2025 Outlook: Supply-side reforms are brewing opportunities, and industry concentration will continue to rise.
The merger wave has begun from the top down, with regulators encouraging leading brokerages to merge and restructure to create world-class investment banks. In recent years, brokerages have shown heavy capitalization characteristics, and under the new positioning of the securities industry, leading brokerages need to strengthen functional construction; benchmarking against world-class standards, domestic brokerages improve their comprehensive strength through mergers and integrations, with significant space for international business development.
Supply-side reforms brew opportunities, and the concentration in the securities industry will continue to rise. If the integration of GTJA and HAITONG SEC is completed, asset scale will leap to the number one position in the country; with industry reshuffling, medium and large brokerages may form a catching-up situation. Amid significant slowing of equity financing and increasing competition among peers, mergers and restructurings become the main means of improving comprehensive strength rankings.
Investment Recommendation: Select stocks from the dual dimensions of trading performance elasticity and supply-side reform.
Looking toward 2025, with moderately accommodative monetary policy and further declines in interest rate benchmarks, as well as supply-side reforms in brokerage and rising industry concentration.
In terms of symbol selection, 1) First choice for symbols with high trading performance elasticity: CNI Xiangmi Lake Fintech Index (East Money Information) (300059.SZ), Beijing Compass Technology Development (300803.SZ);
2) Strengthen and optimize leading brokerages, CITIC SEC (600030.SH), China Galaxy (601881.SH), GTJA (601211.SH);
3) Brokerages with low valuations and certain performance elasticity, HTSC (601688.SH), Industrial Securities (601377.SH), HAITONG SEC (600837.SH), etc.
Risk warning: Capital market reforms may fall short of expectations; market liquidity may be worse than expected; significant corrections in the stock market; progress of mergers and acquisitions may not meet expectations.
