On February 17, the securities sector in the A-share market experienced a modest increase of 0.42%, with notable gains from several brokerage firms including a remarkable 7% surge from Xinda SecuritiesSimilarly, Dongxing Securities, China Galaxy Securities, Shenwan Hongyuan, Zhongjin Company, among others, also posted gains exceeding 1%. This rise marked a significant recovery in a sector that has faced its share of challenges, driven in part by recent regulatory reforms and a renewed interest from investors.

This uptick comes on the heels of several supportive developments within the financial sector, particularly in light of deepening financial regulatory reforms that have spurred localized deployments of technological innovations such as DeepSeek by brokeragesAnalysts observing these patterns have noted that the market is now seeing a revival of bullish sentiment, especially following the Chinese New Year, with an overall rise of more than 6% in what has been dubbed the “bull market flagbearer.”

Market activity has displayed significant vibrancy, attributed to improved business performance of brokerages, hastened implementation of DeepSeek technologies, and heightened expectations regarding mergers and acquisitions (M&A). Analysts maintain an optimistic outlook on the brokerages' valuations and earnings, especially as the market presents a canvas ripe for growth.

Continuous Deepening of Financial Regulatory Reforms

On this particular day, the resilience of the A-share index was underscored by the burgeoning number of brokerage firms that have recently undergone changes in their controlling shareholdersXinda Securities and Dongxing Securities announced such transitions, attributable to the Ministry of Finance's decision to transfer its stakes in China Orient and China Xinda to a state-owned enterprise known as Huijin Company

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Following this transfer, Huijin will hold a majority of 71.55% in China Orient and 58% in China Xinda, while the actual control switch from the Ministry of Finance to Huijin Company will not alter the percentage of stakes held by the companies themselves.

On February 14, a trio of financial asset management companies—China Xinda, Dongfang Asset, and Changcheng Asset—also disclosed adjustments regarding their controlling shareholders, highlighting a concerted trend toward consolidation under Huijin Company’s oversightThe reports indicate a broader strategy aimed at reinforcing control over state-held financial assets, with implications for operational efficiency and policy continuity.

Amid these changes, brokerage firms under Huijin's influence generally welcomed the news with price increases in their stocks, signaling confidence from investorsAs of June 30, 2024, Huijin is projected to directly hold equity in 19 financial institutions, a consolidation approach that aligns with ongoing reforms intended to fortify governmental oversight in the finance sector.

One financial analyst commented that Huijin’s acquisition of stakes in these four major financial entities represents a pivotal moment in China’s ongoing financial reforms, aiming to centralize control over crucial sectors to enhance operational coherence and stability across the financial landscape.

Accelerated Integration of DeepSeek across Brokerages

This year, following the celebrations of the Lunar New Year, the introduction of DeepSeek technology has catalyzed brokerages' efforts in revamping their operational frameworksA growing number, reportedly over 30 brokerages, have announced either their integration or acceleration of DeepSeek, which showcases outstanding capabilities in document processing, intelligent Q&A systems, and knowledge retrieval applications.

These technologies are already being utilized internally for various applications, including smart coding, AI-assisted office functions, and risk compliance management, thereby enhancing operational efficiency and decision-making precision

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Looking ahead, the influence of DeepSeek might transform not only investment advisory and research but also marketing services and investment banking core functions.

A non-banking chief analyst from Guojin Securities outlined that DeepSeek-R1, due to its open-source, scalable, and cost-efficient deployment characteristics, accelerates the application of AI across specific industries, notably benefitting sectors with high data density such as financeThe potential for innovative business models like AI-enhanced investment advisory and asset management is substantial.

The sentiment among analysts suggests that as trading activities gain momentum, coupled with improvements in brokerage operations and escalating expectations concerning mergers, there is a favorable outlook for enhanced dual valuation and performance within brokerage stocksThe sector is anticipated to rebalance and recover substantially by 2025, buoyed by increased trading volumes and an uptick in market sentiment.

Despite rising market volatility, analysts at Chengdu Securities recommend ongoing investment opportunities in the brokerage sector, encouraging investors to remain vigilant about shifts in margin financing dynamics.

Another analyst from Yangtze Securities has expressed confidence in the prospect of leading firms benefiting from increased market concentration amidst ongoing supply-side reforms in the brokerage industryThere is an expectation for improved risk control metrics under a regulatory framework prioritizing the nurturing of competent firms while restricting the less capable.

Looking Ahead: Optimism for Sector Recovery

In summary, since the New Year, supported by myriad optimistic developments, the securities sector has gained significant upward momentum, raising expectations among investors for further positive outcomes

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Looking to the future, analysts universally maintain confidence in continuing upward trends.

During the week spanning from February 10 to 14, daily average transaction volumes reached 17,486.62 billion yuan, marking an increase of 8.23% compared to prior periodsThe CSI 300 index saw a uplift of 1.19%, reflecting a general recovery in the equities market as trading activities consistently escalated.

In addition, preliminary reports from numerous brokerages regarding their 2024 earnings indicate a healthy growth trajectory, with a collective revenue of 227.28 billion yuan recorded by 12 listed brokerages, reflecting a year-on-year increase of 9.2%. Net profits also registered an uplifting 21.2% year-over-year growth.

Independent financial commentator Guo Shiliang remarked that the combination of merger and acquisition activities and a resurgent market environment has bolstered broker stock pricesWhile the immediate sentiment surrounding the market is volatile, longer-term performance will govern valuation metrics for the companies involvedThe sustained interest in mergers and the ongoing regulatory benefits suggest the potential for continued upward trajectories in stock prices, particularly as average transaction values rise.

In conclusion, while challenges persist, expert opinions shine a light on the favorable landscape for the securities industryActive monitoring of liquidity dynamics and robust engagement with the subtle shifts in market sentiment will be paramount as the sector moves forward toward potential peaks in performance.