Chinese brokerages will likely see growth enter a "golden
period" in the coming two years on the backdrop of a booming stock
market and regulatory support to new businesses, industry analysts
said.
However, domestic securities firms are expected to meet a raft
of challenges including moves to lessen dependence on brokering
incomes and measures to retain existing clients, insiders
noted.
The combined brokerage commission income of Chinese mainland
stock houses may reach 150 billion yuan (US$20.1 billion) to 170
billion yuan this year, jumping nearly five-fold from a year
before, according to estimates by Everbright Securities Co.
The cumulative brokering commissions had reached about 137
billion yuan in the first three quarters during which the benchmark
stock index in Shanghai more than doubled amid hectic turnover.
"The brokerage business will still be the key to shoring up
stock firms' bottom line in the next few years," said Wei Quanhui,
a Huatai Securities Co consultant. "But they are gradually
realizing that they can't simply bank on trading stocks for clients
when competition heats up."
Mainland-listed brokerages posted eye-popping financial results
in third-quarter disclosures. Most of the growth was derived from
securities brokering.
CITIC Securities Co, the nation's biggest public broker, said
net profit in the first three quarters soared by more than 550
percent to 8.36 billion yuan. Brokerage fees of the firm jumped
nearly five times to 10.4 billion yuan in the first nine
months.
A two-year revamp of the securities industry was just concluded
as more than 30 troubled brokers were closed down after they had
been found to misuse clients' funds and cause hefty losses in
proprietary trading.
Stock authorities have already started to nourish stronger
industry players by allowing them to launch potentially lucrative
businesses including asset management and private equity.
CITIC and China International Capital Corp, partly held by
Morgan Stanley, this year gained regulatory nod to set up
subsidiaries to invest in start-up companies before initial public
offerings.
"The string of innovative businesses will surely change the
traditional profit models of domestic brokers," said Dong Xiaofeng,
an Everbright Securities analyst. "The securities industry should
be overweighted in portfolios as new profit channels are gradually
added."
Another long-neglected revenue driver will be the underwriting
business, set to be boosted by the A-share issuance of several
large-sized enterprises late this year or early next year, industry
analysts said.
A total of 43 companies raised 171.9 billion yuan in initial
public offerings in the third quarter, 43 percent more than the
combined amount raised by 45 firms in the first half, according to
data compiled by Everbright Securities.
The brokers' combined underwriting commissions of IPOs and
secondary sales reached about 5.8 billion yuan, nearly doubling the
income for the entire 2006, according to industry data.
"Securities underwriting will grow steadily as the market
expands," said Wu Jie, a China Securities Co trader. "With the bond
and securitization markets set to boom, underwriting incomes will
likely improve significantly."
The China Securities Regulatory Commission in June expanded the
Qualified Domestic Institutional Investor program to allow brokers
to help clients invest money in overseas securities.
Regulators are also on track to introduce new trading mechanisms
such as securities lending and margin trading arrangements in a bid
to boost turnover and shore up the market size.
A margin trading system allows investors to pay margins to buy
stocks and borrow the rest of the money from brokers to fund the
purchase. Securities lending makes it easier for investors to
borrow stocks from brokerages and sell them short.
"We can only expect things to change gradually," said Huatai's
Wei. "For smaller firms that depend largely on the brokerage
business, competition will be tougher and they may face the risk of
being acquired."
(Shanghai Daily November 5, 2007)
