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More foreign stake in Chinese brokerages

Beijing to raise investment cap in joint-venture securities firms from 33 per cent to 49 per cent

PUBLISHED : Saturday, 25 August, 2012, 12:00am
UPDATED : Friday, 05 October, 2012, 7:02pm

Beijing is set to increase the investment cap for foreign investors setting up joint-venture brokerages on the mainland, the securities regulator announced yesterday as the stock market hit a 42-month low.

The China Securities Regulatory Commission (CSRC) published a draft rule yesterday evening under which a foreign partner could own up to 49 per cent of a Sino-foreign joint-venture securities firm, up from the current 33 per cent.

The regulator said it was soliciting public opinions before officially implementing the rule.

The increased maximum foreign ownership in a joint-venture brokerage is in line with an agreement between top Chinese and American policymakers during the Strategic and Economic Dialogue in May, the CSRC said.

Beijing has been reluctant to fully open the lucrative securities sector in the past decade for fears that homegrown brokerages are not strong enough to compete with big-name global rivals such as Morgan Stanley and Goldman Sachs.

Mainland securities firms, including Citic Securities and Haitong Securities, grew by leaps and bounds before 2010, benefiting from the rapid growth of the market and taking advantage of huge trading volumes and a flood of initial public offerings to pocket handsome profits.

Currently, foreign investors cannot open wholly owned securities firms on the mainland and can only establish joint-venture brokerages.

The CSRC also restricts the business scope of joint-venture securities firms to underwriting stock and bond offerings and providing consultancy services. They are barred from opening trading outlets to collect brokerage fees from clients, a lucrative business that generates nearly 60 per cent of local securities firms' revenue.

The CSRC's decision to allow foreign players greater access to the market comes at a time when local brokerages have been writhing in the market downturn that has severely eroded their profits.

The Shanghai Composite Index yesterday fell 20.97 points, or 0.99 per cent, to 2,092.1, the lowest close since March 3, 2009.

Battered by worries of poor corporate earnings, investors have been heading for the door, betting on a further decline. Turnover has dwindled sharply this year as daily trading value now represents less than a tenth of that in 2007, when the market witnessed a bull run.

"Investors have totally lost hope," said Shenyin Wanguo Securities analyst Wei Daoke. "They don't have the confidence to hold on to shares in this bearish market."

PetroChina, the country's largest oil company, reported a 6 per cent drop in first-half profit, falling short of market expectations.

The poor result aggravated fears about the market outlook, with some investors questioning CSRC chairman Guo Shuqing's earlier advice to buy blue-chip stocks.

In February, Guo encouraged mainland investors to increase holdings of the largest state-owned listed firms.

Analysts forecast mainland-listed companies would report an overall 10 per cent drop in interim earnings. The reporting season for first-half earnings ends on August 31.

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