Securities Firms’ Performance Improves With Market (AI Translation)

【周刊提前读】券商业绩随市场回暖 马太效应加剧

The Chinese securities industry faced immense challenges in the first three quarters of 2024, marked by a sluggish stock market and tightened regulations that led to sharp declines in revenue and net profits across the sector [para. 1]. However, on September 24, 2024, a set of decisive stimulus measures introduced by the People's Bank of China, the National Financial Regulatory Administration, and the China Securities Regulatory Commission triggered a dramatic market rally, dubbed the "September 24 Rally." This recovery significantly boosted trading activity, pushing the Shanghai Composite Index to a three-year high and resulting in a strong fourth-quarter rebound for securities firms. As a result, the sector recorded a "V-shaped" recovery, with the total operating revenue and net profits for 2024 increasing year-on-year by approximately 11% and 21%, respectively, despite earlier downturns [para. 1][para. 2].

The Securities Association of China reported that in 2024, 150 securities firms achieved an operating revenue of 451.169 billion yuan and net profits of 167.257 billion yuan, reaching new highs in asset levels. Publicly listed brokers, who dominate 80% of the sector’s revenue and profits, reflected these growth trends, collectively increasing operating revenue by 8.36% and net profit by 15.36% [para. 2][para. 3]. Despite this resurgence, challenges persist, including fee reductions in public funds, stricter regulations, and intensified competition in the sector, as noted by industry leaders [para. 3][para. 4].

Fee reductions in mutual funds had a significant impact on brokerage businesses. Since the implementation of the "Administrative Regulations on Securities Trading Fees" in mid-2024, brokerages faced declining revenues in financial product distribution and trading seat leasing. For instance, commission income from trade allocations fell by 35%, marking a significant drop from earlier years. Consequently, the industry has been shifting its business model from a traditional sell-side, product-centric approach to one focused on buy-side advisory services and wealth management [para. 4][para. 5][para. 6].

Investment banking, another key revenue stream for securities firms, suffered significant setbacks in 2024, particularly due to tighter IPO regulations introduced in late 2023. This resulted in an 81% drop in fundraising through IPOs and continued pressure on equity and bond financing. Despite efforts by major securities firms to integrate investment banking with other business lines, such as wealth management and Hong Kong IPOs, the segment remained under significant strain [para. 5][para. 7][para. 8].

Proprietary trading, however, emerged as a stabilizing force for securities firms, contributing approximately 35% to total revenue in 2024. Investments in bonds and high-dividend equity assets under Other Comprehensive Income (OCI) accounts helped mitigate market volatility. With China's low-interest-rate environment expected to persist, firms are focusing on bond investments and FICC (Fixed Income, Currencies, and Commodities) operations. Nonetheless, increased market volatility and regulatory tightening have made maximizing returns from proprietary trading a major challenge [para. 9][para. 10][para. 11].

Wealth management within brokerages faced structural transitions. Traditional models emphasizing branch expansions and product sales proved insufficient in addressing changing market dynamics. Moving forward, the industry is leaning toward personalized, client-centric strategies, such as buy-side investment advisory and private wealth management. However, achieving sustainable growth through these channels requires overcoming regulatory constraints and organizational inefficiencies [para. 5][para. 6][para. 10].

Investment banking and proprietary trading divisions have also sought alternative revenue opportunities, such as expanding activities in Hong Kong's IPO market and enhancing synergies between business units. However, these efforts are hindered by fragmented internal systems and interdepartmental competition, slowing progress [para. 8][para. 9].

In summary, while the securities industry showed signs of recovery in 2024, it continues to grapple with fee reductions, regulatory tightening, and slowdowns in traditional revenue sources like investment banking. Firms are increasingly shifting focus toward wealth management, proprietary trading, and business integration for long-term growth, although substantial challenges remain in execution and market adaptability [para. 1][para. 3][para. 5][para. 10].