The landscape of the securities industry in China has witnessed significant transformations as new policies aimed at optimizing capital market operations come into effect. The interplay between policy frameworks, market behavior, and investor confidence lays the groundwork for a more sustainable and efficient economic environment. This trio—policy, market, and investor interactions—could potentially accelerate the formation of a virtuous cycle that is likely to enhance performance expectations for securities firms.
Analyzing the performance of publicly listed securities companies through 2023 reveals a nuanced picture. By March 20, 28 out of the 50 listed firms had released their preliminary performance forecasts. Notably, 11 of the 15 forecast reports indicated a positive growth trajectory for net profits. Some firms, like Hongta Securities, reported astonishing growth rates exceeding 710%. Others, such as Zhongtai Securities and Northeast Securities, also indicated over 100% increases. At the same time, however, firms like Haitong Securities and Hualin Securities experienced declines of 80% and 50%, respectively.
Haitong Securities' struggles can largely be attributed to the turbulence in the marketplace, compounded by substantial interest rate hikes from central banks in Europe and the United States. This environment led to a significant devaluation of the firm's international financial assets coupled with a notable rise in foreign interest expenditures. The low comparative performance from the previous year further exacerbated the situation, resulting in increased provisions for impaired credit assets. Hualin Securities faced challenges tied to the overall volatility of the A-share market and diminished trading activities, amidst tightened conditions for initial public offerings (IPOs) and refinancing.
In terms of financial performance, the reports from 13 listed firms reveal that CITIC Securities managed to generate revenues surpassing 60 billion yuan, while other players like China Merchants Securities and Orient Securities also crossed the 10 billion yuan mark. However, the revenue growth rates provided a mixed bag, with several firms seeing their profits contract. CITIC and Orient Securities recorded declines in both revenues and net profits due to diminished fees from trading activities.
Looking at the broader industry perspective, research from the China Securities Association indicates that all 145 securities companies collectively achieved a revenue of approximately 405.9 billion yuan in 2023, marking a modest growth of 2.77% year-on-year, even as net profits dropped by 3.14% to roughly 137.83 billion yuan.
Despite positive growth in total assets and capital, the return on equity (ROE) for the securities industry fell to 4.67%, down 0.43 percentage points from the previous year, indicating underlying pressures as market constants shifted.
The trading environment of 2023 has been consistently described as one of "wide fluctuations," as evidenced by declining trading volumes in stock funds. As of the year's end, significant indices recorded losses: the Shanghai Composite Index fell by 3.7%, the Shenzhen Component Index by 13.54%, and the ChiNext Index spiraled down by 19.41%. The overall capitalization of Chinese A-shares dipped by 1.37% since the close of 2022.
This heightened volatility translated into challenges for brokerage firms, adversely affecting their revenue streams. For 2023, estimates from Dongguan Securities suggest a brokerage commission rate of 0.216%, maintaining a long-term downward trend, signaling diminishing profitability within the traditional brokerage model. Consequently, there is an urgent push for firms to pivot towards wealth management solutions.
Likewise, the performance of newly issued funds also suffered. A total of 1,128.06 billion yuan was raised in new fund issues, representing a 22.31% annual decline. The number of new fund launches dropped by 9.65%, showcasing baseline challenges that further diminished the scope for successful financial products in a competitive marketplace.
A further breakdown indicates that the brokerage segment recorded a net income from commission of 103.7 billion yuan, down 9.95% year-on-year. These trends reflect a chain reaction stemming from a sluggish market, evidenced by a slight dip in stock fund turnover alongside the broader decrease in fund issuance, magnified by heightened industry concentration and competitive pricing pressures.
The tightening of financing policies has also added pressure on investment banking operations. In 2023, the earnest implementation of the stock issuance registration system has ostensibly improved corporate fundraising efficiency. However, the simultaneous economic regulation has led to a deceleration in market financing volumes.
The capital raised through IPOs was approximately 356.54 billion yuan from 313 new listings, reflecting a staggering 27% decrease, while the number of refinancing activities likewise fell, indicating a trend of reduced corporate engagement with equity markets.
Remarkably, despite challenging market conditions, bond underwriting volumes rose, reaching a total of 135.03 trillion yuan, up 26.14%. The first three quarters of 2023 saw the asset management sector achieve net income of approximately 35.13 billion yuan, showcasing resilience in adapting to the evolving regulatory landscape, while emphasizing the ongoing demand from residents for comprehensive asset management solutions.
As 2024 approaches, market participants are increasingly optimistic regarding government reports highlighting the intent to stabilize domestic capital markets. The focus is shifting from mere quantitative growth to improving the intrinsic stability and overall quality of the markets.
Priority policies are being enacted to bolster investor protection and enhance market confidence. Throughout March, the China Securities Regulatory Commission furthered its commitment by publishing multiple guidelines aimed at intensifying market supervision and regulation.
These guidelines delineate four key pillars: stringent entry requirements for listings, increased oversight of listed firms, enhanced regulation of securities companies and public funds, and comprehensive improvement in the regulatory organization's structure and processes. This multilayered strategy underscores the regulator's intention to prioritize market quality and investor safety.
Such initiatives have already begun to invigorate market participation, as evidenced by a rebound in margin trading activity. The total volume for margin trading surged following recent interventions, signifying a growing restoration of investor confidence and engagement.
Further reinforcing this positive sentiment, robust net inflows from foreign institutional investors have characterized the A-share market since the beginning of the year, reversing previous trends of net outflows. The cumulative net inflow as of late March reached an impressive 72 billion yuan.
Comparative analyses indicate that though the securities industry has underperformed against broader indices like the CSI 300, individual firms such as CICC and Huatai reported positive returns, painting a picture of resiliency amid sector challenges. The overall low valuations within the industry are reinforcing the prospect for recovery and future performance spikes.
As 2023 unfolds, the directional push from policy interventions could catalyze a significant recovery in trading volumes, asset management scale, and the overall financial health of brokerage firms. Stability measures and enhanced governance are poised to elevate investor sentiment while supporting the long-term growth trajectory of the securities sector.
Given the combined impact of favorable governmental policies and market adaptations, the securities landscape is on a promising yet intricate path. The balance struck between regulatory rigor and market freedoms will determine the extent of recovery and growth in the years to come.