Based on the initial numbers, their combined net profit for 2018 had fallen by 43 per cent to 57.3 billion yuan (US$8.45 billion). Total revenues from operations had dropped by a fifth to 200.8 billion yuan.

Their stock market performance was no better. The securities firms logged an average 23 per cent drop in share price in the past year.

“Business from the primary and secondary markets has shrunk, causing a sharp fall in the securities firms’ overall revenues and profit,” said Zuo Xinran, an analyst covering the non-bank financial sector at Founder Securities.

She attributed it to the tightening of financial regulations, a deteriorating economic outlook in China, and a meltdown in hundreds of billions worth of shares pledged by companies as collateral to raise funds last year.

All 27 securities companies posted a profit decline in 2018, with Southeast Securities the worst performer.

The Chongqing-based brokerage saw net profit plunge 98 per cent to 13 million yuan last year, based on the initial December results and the figures for the rest of the year.

“The market situation is grim,” said Southwest Securities in its third-quarter report.

“Due to the big change in the capital market environment this year, the domestic stock market has remained weak and trading volumes have shrunk. It has affected our company’s net profit.”

The securities brokerage business accounts for more than 40 per cent of Southwest’s revenues.

The country’s three largest securities firms by revenue – Citic Securities, Guotai Junan Securities, and Haitong Securities – saw their 2018 profit drop 12 per cent, 24 per cent, and 37 per cent respectively.

China’s benchmark Shanghai Composite Index ended 2018 as the world’s worst market performer for a second year, falling 24.6 per cent during the year as an unprecedented trade war between China and the United States weighed on the Chinese economy and crimped corporate earnings.

Investor enthusiasm towards equities has declined. The average daily turnover on the A-share market was 369 billion yuan last year, down almost a fifth from 2017, according to data from Orient Securities.

The firms’ investment banking business also took a hit, because of regulators’ heightened scrutiny of IPO applications.

China’s two stock exchanges, in Shanghai and Shenzhen, hosted 106 new listings in 2018, down 76 per cent from the previous year, according to statistics from Deloitte China. The approval rate dropped to 58 per cent in 2018 from 80 per cent in 2017.

But analysts expect the sector to bounce back in 2019.

Zuo said market expectations have increased after the central bank recently cut the reserve requirement ratio for lenders, on top of its previous measures to ease credit.

“People are expecting the central bank to loosen liquidity to prop up the economy,” she said.

“That could strengthen capital market confidence and stimulate stock trading.”

Cheng Yimin, an analyst at China Post Securities, said he is “relatively optimistic” about securities firms in the year ahead.

“The stock market has hit its lowest limit and can’t possibly go any lower. Trading volumes will bounce back,” he said.

Cheng added the possible launch of the new technology board this year will stimulate the IPO market and bring new investment banking business to the sector, especially for the biggest players with higher deal flows.