Mainland broking profits surge as market booms
Daniel Ren in Shanghai
Profits reported for last year by the mainland brokerage industry have almost quadrupled from 2006, driven by a surge in new clients and stock trading.
However, analysts said brokerages would struggle to repeat the performance given the slide in the mainland markets this year.
According to a research report by Guotai Junan Securities, the 47 brokerage houses that had published full-year balance sheets before January 21 posted a combined profit of 79.43 billion yuan for last year, or 1.69 billion yuan on average, up 287 per cent from 2006.
A 96.66 per cent increase in the Shanghai Composite Index last year boosted brokerages' trading fee income by 405 per cent from a year earlier, accounting for 48.9 per cent of their total revenue, the Guotai Junan report said.
Annual turnover on the Shanghai and Shenzhen markets increased 407 per cent last year to 108.9 trillion yuan as millions of unseasoned retail investors flocked to the equity market.
Analysts said the full-year results were not surprising given that securities houses were among the top beneficiaries of the bull run.
However, as the Shanghai Composite Index has dropped 14.65 per cent this year, the brokerages may need to find other income sources to sustain earnings growth.
'The role of brokerage business will be diminished this year,' said GF Securities analyst Pan Li. 'Brokerages will have to shift their focus to other sectors such as proprietary trading to keep the growth momentum.'
The China Securities Regulatory Commission is trying to strengthen brokerages ahead of further liberalisation of the capital market. Securities firms are being encouraged to go public to raise much-need capital for expansion.
Analysts said small brokerages were likely to be weeded out in the coming years due to cut-throat competitions in investment banking and asset management sectors.
The CSRC published rules on brokerages offering asset management service for individual clients at the end of last month and is soliciting public opinion. It did not say when the liberalisation will take effect.
Asset management business represented 3 per cent of the 47 brokerages' total sales, Guotai's report showed.
'Obviously, asset management will be the bright spot when brokerages chase profit growth in the coming years,' Guotai said.
Taking their cut
Brokerages saw a surge in business as the bull run attracted investors
The tally so far for the combined profits of mainland brokers last year, in yuan 79b