Chinese brokerage firms to see profits rally in second half

China’s securities sector will see a modest recovery in the second half of the year after suffering significant profit slumps in early 2016, analysts say.

Mainland brokerages are expected to see profits rebound 7 per cent in the coming months on increased profitability of credit businesses, following a 57 per cent year-on-year drop in total profits in the first half, a Bank of China International (BOCI) report said last month.

“Market weakness weighed on broker sector earnings,” BOCI analysts Weicheng Tang and Lin Yuan said.

Brokerage companies, which are heavily dependent on the secondary market, have been tracking losses in thevolatile mainland A-share market and the depreciating renminbi. As a result, Hong Kong-listed brokerage stocks underperformed the Hang Seng Index by 9 per cent this year, with average trading volumes in the first half plunging 54 per cent year on year.

In the second half, the A-share market turnover is likely to see a mild recovery, with broker commission rates going down “amid eased price competition,” Tang and Yuan said.

While stock market returns will still be around 40 per cent less than last year, the market rebound will be positive for secondary markets. The mainland CSI 300 index is forecasted to have a 6.5 per cent return, a “noticeable improvement” from the past few months, the report said.