Chinese brokerages hammered in HK on media report banks to get broker licences

30-Jun-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

Shares of Chinese brokerages were hammered in Hong Kong and mainland exchanges after a local media report said the stock market regulator was about to hand new licences to commercial banks, heightening industry competition.

Citic Securities, the nation’s biggest publicly traded securities firm, slumped 4.7 per cent to HK$14.44 in Hong Kong, capping its biggest decline in a month. Haitong Securities, China Galaxy Securities and Huatai Securities all fell by at least 3.7 per cent.

A gauge tracking 52 mainland-traded brokerages slid 2.9 per cent for the biggest decline among all the sectors on Monday. The Shanghai Composite Index slipped 0.6 per cent at the close.

Fuelling the sell-off was a report by Caixin, which said late last week that the China Securities Regulatory Commission (CSRC) was picking at least two big banks to start the brokerage businesses on a trial basis. The report cited unidentified sources and did not provide more details.

The CSRC had no information to disclose, the regulator said in a statement on its website on Sunday in response to the report. It said last year that it wanted to create “aircraft carrier-sized” investment banks to expand the international business of Chinese brokerages.

“Developing high-quality investment banks is needed to carry out the decision by the State Council to promote the development of the capital market and is an important way to expand direct financing,” according to Sunday’s statement. “There are multiple options on how to do that and it is still under discussion.”

The plan, if followed through, would pose a threat to existing players, whose combined revenues were only 6 per cent of those of commercial lenders in 2019. The brokerage businesses will probably increase banks’ revenues by as much as 3.5 per cent, according to an analysis by Industrial Securities.

Citic Securities, the biggest among them, is capitalised at 280.2 billion yuan (US$39.6 billion), while the market cap of Industrial and Commercial Bank of China, the nation’s most valuable lender, is six times larger.

The deregulation will accelerate the move to weed out uncompetitive smaller brokerages, while commercial banks will be able to take advantage of its large base of customers to increase the proportion of direct financing, analysts led by Ma Kunpeng at Shenwan Hongyuan Group wrote in a research note dated Monday.

“The access by commercial banks to direct financing is conducive to the transformation of China’s industry structure and the transition of banks’ business models,” the analysts wrote. They recommended Hong Kong-traded stocks of Postal Savings Bank of China, China Merchants Bank and China Construction Bank.


Category: Hong Kong

Print This Post

Comments are closed.