Brokerage shares rally after regulator issues new Chinese depository receipt rules
A gauge of the brokerages listed on the Shanghai and Shenzhen exchanges climbed 0.7 per cent, according to data compiled by financial data provider Great Wisdom
Industrial Securities and other Chinese brokerages climbed in mainland trading on Thursday, boosted by optimism that new rules released overnight on issuance of depository receipts by high-profile technology companies will help the sector to recover from record low valuation.
A gauge of the brokerages listed on the Shanghai and Shenzhen exchanges climbed 0.7 per cent, according to data compiled by financial data provider Great Wisdom.
The China Securities Regulatory Commission, the nation’s securities regulator, issued nine sets of rules on more than nine requirements late on Wednesday night on floating Chinese depository receipts (CDRs) – essentially surrogate securities issued by a bank that represents equity in foreign companies, which are designed to lure home listings of Chinese companies that register overseas.
Industrial Securities and Citic Securities led Thursday’s gainers, as Haitong Securities estimated the new business could boost revenues for the entire sector by as much as 10 per cent.
Industrial Securities ended the session 4.3 per cent higher at 6.05 yuan in Shanghai, with trading volumes surging to more than four times its 30-day average.
Citic Securities, the nation’s biggest brokerage by market value, added 1.6 per cent to 19 yuan and its Hong Kong-traded stocks added 0.8 per cent to HK$19.70. Zheshang Securities rallied 2 per cent to 11.02 yuan.
A push by officials to woo Chinese companies engaged in fledging industries to list on the country’s capital markets is expected to provide some relief to the brokerage sector, which is grappling with shrinking profits and slowing earnings growth.
The brokerage sector is now trading at 1.32 times its book value on a monthly basis, the lowest on record, according to Bloomberg data.
Larger brokerages with the widest range of holdings stand to benefit most from the CDR segment, according to Haitong Securities.
Sun Ting, an analyst at the Shanghai-based broker, is now predicting revenues from CDR issuance, custody and transactions could grow to as high as 31 billion yuan (US$4.85 billion) for the sector, adding to a 2 per cent industrywide profit increase this year, if current growth levels remain consistent.
Smartphone maker Xiaomi, which is seeking to raise up to US$10 billion in a Hong Kong initial public offering, likely available to investors by early-to-mid July, will also become the first to sell CDRs – part of an overall government effort to let mainland investors benefit from the growth of China’s flagship technology companies.