In the future, with the maturity of the futures market, the trend of declining exchange commission rates is inevitable. Futures companies that overly rely on traditional brokerage business may face the risk of being prioritized for liquidation.
According to the Securities Times app, China Merchants Securities released a research report stating that the current development goals of the futures industry are clear, with a well-defined overall path. The market is continuously supported by favorable policies, combined with rigid industry demand, jointly supporting the industry's fundamentals. In the long term, with a clear industry positioning, a clear development path, steadily improving business capabilities, continued efforts from both supply and demand sides, the fundamentals are expected to stabilize and strengthen. Compared to similar business models in the securities industry, the futures industry has a lighter asset structure, with relatively larger profit fluctuations. Therefore, its valuation should be higher and more resilient than the securities industry. Currently, the valuation of the futures sector is relatively low, suggesting an active layout.
The main points of China Merchants Securities are as follows:
Why recommend the futures industry at this time?
1) Policy dividends have arrived, and a new cycle is about to begin: The issuance of the "Opinions on Strengthening Regulation, Preventing Risks, and Promoting the High-Quality Development of the Futures Market" is as significant to the futures industry as the multiple versions of the "Nine Articles" are to the securities industry.
2) The Belt and Road Initiative provides practical experience in "seizing the pricing power of bulk commodities": The cycle of "resource products - technology products" trade between China and countries along the Belt and Road determines China's monopolistic buying position in the spot market. With the promotion of the internationalization of the Renminbi, improvements in storage/logistics infrastructure along the Belt and Road, China-led futures markets will attract more domestic and foreign investors, enhancing the global influence of Chinese futures prices.
3) Rigid risk management demand: In a volatile market environment, industrial clients have become the "natural demand side" for futures market transactions. With the promotion of portfolio margin, improvements in market maker rules, the cost of industrial clients participating in hedging is expected to decrease, and the penetration rate is likely to further increase.
Industry fundamentals with marginal improvements: Commodity futures and options continuously introducing new products; Financial products being launched or marginally relaxed, expanding market boundaries; Incremental funds from commercial banks, medium to long-term funds, and overseas qualified investors entering, leading to an active market. Supply and demand resonance support the improvement of fundamentals.
The domestic futures market is growing rapidly, with differentiated development in its structure.
After thirty years of development, the trading activity in the domestic futures market significantly surpasses Japan and Europe, slightly lags behind the USA. In 2023, Zhengzhou Commodity Exchange, Dalian Commodity Exchange, Shanghai Futures Exchange, and China Financial Futures Exchange all rank in the top thirty in terms of trading volume for futures and options on global exchanges. Structurally, unlike the US and even the global dominance of financial products, influenced by regulatory guidance and market preferences, China's futures market focuses mainly on commodity and interest rate derivatives, with the development of stock index derivatives being lukewarm.
The futures industry has a light volume, significant profit fluctuations, high concentration, with policy dividends released, endogenous growth, the overall industry will move towards being 'small and beautiful'.
Regardless of the size of assets, revenue, and net income, the futures market displays the characteristic of being a 'large market, small industry'. In 2023, the revenue and net income of the futures industry are lower than the leading brokerage China Citic Securities. The industry structure shows strong concentration and continuous enhancement. The business structure is mainly focused on traditional brokerage business, with a single business structure and intense market competition resulting in the industry's ROE being lower and more volatile compared to the banking and securities industries. With the opening up of industry leverage space, the maturation of innovative business, and the relay of traditional brokerage becoming the main revenue contributor, the industry is expected to move towards being 'small and beautiful'.
Currently, brokerage services remain the main revenue contributor for the industry, with policies being the main variable for profits.
In recent years, brokerage revenue accounts for over ninety percent. In terms of business scale, the underlying demand for risk hedging in traditional industries, coupled with policy attitudes, determines the direction of marginal changes in transaction volume and the market trading space. In terms of business fees, intense market competition, institutionalization/industrialization trends weaken the bargaining power of futures companies and drive commission rates downwards; with domestic liquidity remaining loose, futures margin rates are under pressure. Subsequently, as the futures market matures, the trend of declining exchange rebates is inevitable. There is a possibility of futures companies overly relying on traditional brokerage business being preferentially phased out.
After the dechannelization of wealth management income, a new starting point.
After the new regulations on asset management, the growth rate of futures asset management has shifted up, currently developing steadily, with business income accounting for a stable 2.5%; in terms of fees, the trend of reducing fees and offering discounts is evident, with management fees under significant pressure, and most futures asset management focusing on FOF as the main line, developing CTA strategy assets to boost the comprehensive fee rate of asset management business. In terms of business structure, brokerage-based futures asset management benefits from the parent company's personnel reserves, financial strength, brand recognition, and management scale far ahead.
Risk management business is a key point for industry innovation transformation and also an important lever for serving the real economy.
Overall macro uncertainty is on the rise, making risk hedging more difficult and costly, with significant fluctuations in risk management revenue and net income. Looking at specific items:
1) Domestic basis trading: fast growth, wide coverage, high efficiency, with future business personnel reserves improving and trade supporting facilities being enhanced, the profitability of basis trading will continue to increase.
2) OTC derivatives business: Compared to securities firms and banks, futures companies are at a competitive disadvantage in the OTC financial derivatives market. In the future, focusing on commodity derivatives race differentiation competition may pave the way for a smooth path.
3) Market making service: The market making business is growing rapidly, with effective solutions to issues of discontinuous active contract months and light trading in certain varieties.
Investment recommendations: It is recommended to focus on Nanhua Futures (603093.SH), Yongan Futures (600927.SH), Ruida Futures (002961.SZ), etc.
Risk warning: Increased market volatility, regulatory policy changes, intensification of market competition, industry innovation business development falling short of expectations, etc.
