According to Zhijia Finance APP, China Merchants has released a research report stating that looking ahead, the capital markets will show a pattern of "stock market fluctuating upwards and bond market generally favorable", which is Bullish for most Brokerage businesses. Sector performance in 2025 is expected to experience strong recovery. In terms of valuation, as of December 13, 2024, the Brokerage sector's PB valuation is 1.59 times, which is at the 39% percentile point over the past 10 years; in terms of Institutions' Hold Positions, benefiting from the 924 market and rising stock prices, the sector's Hold Positions ratio has risen to an annual high of 0.72%. In the long term, the industry's performance recovery and favorable conditions under supply-side reform logic have not yet been fully priced in, and there is still upward space for sector valuations; short-term structural opportunities can be focused on.

The main points of China Merchants Securities are as follows:

The industry is experiencing a reversal, "after darkness comes light."

This year, the bond market has been bullish and rising rapidly, while the equity market is experiencing a bottom reversal and has entered a new round of "bull market starting point"; the primary market is still affected by the total control of stock financing, remaining in a "cooling period." Against this backdrop, in the first three quarters, the securities industry's brokerage, investment banking, and credit have faced significant pressure, while self-operated flexibility has been released under equity reversals, resulting in a significant year-on-year recovery in overall industry revenue and Net income; in terms of valuation, performance has been relatively weak in the first three quarters, underperforming the Large Cap until the regulatory body made a major announcement at the end of September, igniting market sentiment, leading to a comprehensive counterattack by the sector and leading the market.

A new ecology in the industry is being built, and a new pattern is brewing.

The new version of the "Nine National Regulations" has opened a new capital market reform cycle focused on "strengthened regulation, risk prevention, and promotion of high-quality development", with supporting policies being introduced successively, pushing Brokerages, public offerings, and other Institutions to return to their business origins and fully play their "functional" role. Share Buybacks, designated re-loans, and SFISF, two innovative monetary policy tools, further activate the Capital Markets. Mid- to long-term funds represented by insurance funds and personal pensions are continuously growing, enhancing the intrinsic stability of the Capital Markets, and ETF investments are taking off, entering a new era of "investor-centric" in the capital market. Furthermore, with GTJA merging HAITONG SEC, and the CSRC approving Zheshang to become a major shareholder of Guodu Securities, and Guolian merging Minsheng Securities officially passed, the supply-side改革 of the brokerage industry continues to advance, and improvement of the industry's pattern is on the way.

The elasticity of brokerage is sufficient, and the transformation of the financial business is ongoing.

Since the end of September, market sentiment has significantly recovered, and the funding situation has improved comprehensively. Benefiting from continuous client inflows, there is enormous potential for improvement in brokerage business revenue, especially for brokerages focused on the Internet Plus-Related sector, such as Guosen and East Money Information, which have seen considerable gains. As the media evolves and the age structure of investors becomes younger, traffic remains the winning formula for traditional brokerage businesses.

In wealth management, against the backdrop of reduced commissions in public offerings and the trend towards passive investing, the single financial product agency business is facing a dual dilemma of increasing revenue and profit. Integrating platform resources, developing investment advisory services, and building an ETF ecological circle may provide a way out.

A new normal in stock financing rhythm may form, with mergers and acquisitions becoming the mainstay of business increments.

With the secondary market warming up and stock market liquidity abundant, the inclusiveness of equity financing is recovering, and normalization of IPOs is expected to gradually be realized, alleviating pressure on investment banking. On the incremental side, regulators are encouraging and guiding the market to carry out mergers and acquisitions from top to bottom, from simplifying review processes to diversifying transaction tools to enhance the efficiency of merger and acquisition transactions, which greatly stimulates the market's enthusiasm for mergers and acquisitions, providing new development opportunities for investment banking.

Asset management compensates quantity over price, maintaining overall stability.

In terms of scale, under the reversal of equities, investor enthusiasm for subscriptions, coupled with the rise in net value, has led to overall stabilization and recovery of asset management scale. In terms of fees, the trend of reducing fees and benefiting investors in public offerings is gaining momentum. In line with the bond market bull cycle and the trend of passive investing, public fund managers are focusing on fixed income and ETF products, with multiple factors working together to drive product fee declines. Furthermore, in the current ETF boom, the Matthew effect of leading public funds will continue to enhance contributions to the profits of brokerage parent companies.

Equity OCI is gaining favor, and the standardized development of derivatives is progressing.

In terms of proprietary equities, the downward trend in the market at the beginning of the year severely impacted proprietary equities, significantly dragging down the performance in the first quarter. This has led most brokerages to prioritize preserving returns and reducing volatility in proprietary equities. According to the mid-year report, increasing holdings in high-dividend assets and accounting for them in the OCI Account to obtain stable dividend returns and lower the impact of fair value changes in equities on apparent profits has become an industry consensus. In terms of derivatives, under the regulatory guidance of 'risk prevention' and capital intensification, the overall scale of business has contracted, and leverage has been reduced; however, under the requirement of playing a 'functional' role, the market-making business of derivatives is expected to shine.

The scale of credit business has moderately increased, and the interest spread is generally controllable.

In terms of scale, with the market warming up and sentiment for financing rising, the balance of margin trading is healthy and continuously growing, driving a rebound in on-balance sheet credit business scale; regarding fees, the intense market competition has led to a rapid decline in margin trading rates, but benefiting from loose liquidity and reduced overall financing costs for brokerages, though the spread has narrowed, it remains generally controllable.

Overseas business is based in Hong Kong, seizing opportunities from the Belt and Road Initiative to accelerate the layout in overseas markets.

In the context of fierce competition in the domestic market and a bottleneck phase in the Hong Kong market, seizing the dividends from 'expanding the opening up of capital markets' and the strategic opportunities of the Belt and Road Initiative, along with laying out in the Southeast Asia and Middle East markets to find the next 'growth point' has become an important option for most leading brokerages. From the performance in the first half of 2024, CITIC SEC, HTSC, and GTJA have already achieved leapfrog growth in their overseas businesses.

In 2025, under nurturing regulatory conditions, the industry's performance is expected to recover strongly.

On the policy front, top-down regulation balances leniency and strictness, emphasizing the maintenance of market stability, continuously nurturing the market. On the funding side, 'moderately loose monetary policy' opens up monetary policy imagination; SFISF has been implemented, long-term funds represented by insurance capital have entered the market, share buybacks and increases in loans have invigorated the market, and rebalancing between the primary and secondary markets is ongoing, with a generally loose supply of midstream funds exceeding demand. Considering these factors, the equity market is expected to experience a moderate, healthy, and sustained upward trend. It is anticipated that the industry will achieve total revenue of 511.1 billion in 2025, a year-on-year growth of 17%, and a net income of 181.4 billion, a year-on-year growth of 16%; ROE at 5.76%, a year-on-year increase of 0.59 percentage points.

Investment suggestion: It is recommended to select stocks based on the following ideas.

(1) Stable operation, high capital efficiency, excellent performance but still at a low valuation: CITIC SEC (06030), GTJA (601211.SH), HTSC (06886,601688.SH), Guosen (002736.SZ), GF SEC (01776,000776.SZ);

(2) Closely follow mergers and acquisitions and thematic stocks: China International Capital Corporation (03908,601995.SH), China Galaxy (06881,601881.SH), China Securities Co.,Ltd. (06066,601066.SH), Changjiang Securities (000783.SZ), Guangdong Golden Dragon Development Inc. (000712.SZ).

In addition, pay attention to the progress of the integration of Zheshang and the M&A developments of Guolian.

Risk warning: Market adjustments exceeding expectations; marginal tightening of policies; liquidity tightening; interest rate risk; continued decline in business fees.