Are There Any Potential Plays in China Brokerage Firms?









The rapid development of China’s financial markets have led to an increase in the number of Chinese brokers.


Moreover, with lower operating costs, more extensive research coverage, a full range of capital markets services combined with cheaper brokerage fees are expected to result in a consolidation in the brokerage industry. This might put small local brokers and lower tier foreign banks out of business. With the intense domestic competition and growth of internet finance companies such as Ali Baba and Baidu, it maybe further put pressure on brokerage fee income.


These are some of the top China securities brokerage firms:


CITIC Securities International (HKSE: 6030), P/B: 1.83x; P/E = 21.4x


Haitong Securities Co Ltd (HKSE: 6837), P/B = 1.62x; P/E = 24.4x


Guotai Junan International Holdings Ltd


Guangzhou Guangfa Securities Co Ltd


China Galaxy Securities Co (HKSE: 6881): P/B = 1.55x; P/E = 16.7x


Does this mean an endgame for China brokers?


A potential catalyst could improve the industry. Earlier in Apr 2014, Chinese premier Li Keqiang has announced regarding the Shanghai-Hong Kong Stock Exchange Link which will enable global investors, both institutional and retail to trade on the Shanghai ‘A’ stocks via the Hong Kong Stock Exchange while mainland investors could trade on the Hong Kong ‘H’ shares via the Shanghai Stock Exchange.  Currently, only foreign institutional investors can invest directly in China’s domestic markets through the RQFII quota. Moreover, the Japan Exchange Group has plans to join the equity-trading link between Hong Kong and Shanghai.


Value In Action

Despite slowing GDP growth of the Chinese economy, the rapid development of China’s financial markets and liberalization of the its domestic currency can potentially increase businesses of China brokers. However, consolidation might be inevitable.


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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above

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