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In recent days, the A-share and H-share markets have seen a significant surge, with the Shanghai Composite Index reaching its highest point of the year and the Hang Seng Index achieving a three-year peakThe technology sector has witnessed explosive growth in individual stock prices, leading to a continuous increase in trading volume across both Shanghai and Shenzhen markets, surpassing 1.5 trillion yuan for several consecutive daysThis resurgence in market sentiment has been pronounced, though the brokerage sector's performance lagged behindWith the current policy environment, market trends, and industry fundamentals taken into account, the brokerage sector is poised for a dual boost of valuation recovery and profit growth, presenting notable investment value.
Enhanced Market Activity Benefits Brokerage Business
1. Sustained trading volume increases broker commission and margin financing profits.
As of February 21, 2025, following the Lunar New Year, trading volume has shown a significant upturn, catalyzed by Deepseek, with margin financing balances recovering to 1.87 trillion yuan, nearing levels seen in 2021. Brokerage revenue from commission fees and margin financing interest is directly linked to market trading activity; thus, a high trading volume environment is set to improve the revenue structure for brokerages significantlyHistorically, a 1 billion yuan increase in average daily trading volume can boost net profits in the brokerage industry by approximately 5%-10%.
2. Policy-driven infusion of medium-to-long-term funds expands wealth management opportunities.
Recently, six governmental departments jointly issued a plan that emphasizes the increase in equity investment proportions by insurance funds, social security funds, and annuities, thereby promoting the growth of public fund sizes
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Leading brokerages, leveraging their wealth management business advantages, can diversify their revenue streams through the distribution of financial products and asset allocation servicesFor example, Oriental Fortune has been continuously capturing market share at the retail end thanks to the advantages offered by its internet platform.
Release of Policy Dividends and Accelerated Industry Reform
1. Deepening capital market reforms strengthen brokerage functionalities.
The policy focus supports brokerages in achieving resource integration through mergers and acquisitions, aimed at enhancing their service capabilities for the real economyFor instance, leading brokerages may expand their market share and optimize capital efficiency through cross-regional and cross-business acquisitionsFurthermore, innovations such as the comprehensive registration system and the trading mechanisms for the Sci-Tech Innovation Board will further open up opportunities for brokerage investment banking and market-making.
Recent transfers of equity for three asset management companies (AMCs) to Central Huijin will enhance efficiency in financial resource allocation and strengthen the financial system's resilience against risksThis transfer causes the number of brokerages under Central Huijin’s actual control to rise to sixAs efforts accelerate towards establishing first-class investment banks, the increase in Huijin-affiliated brokerages raises expectations for brokerage license consolidation, which may hasten supply-side reforms in the industry.
2. AI empowerment as financial sector embraces DeepSeek technology.
The DeepSeek model, an open-source AI technology known for its robust information processing and decision-making capabilities, has gained prominence within the financial industry.
As of now, at least 16 brokerages have announced successful local deployment of the DeepSeek-R1 model and have integrated it deeply into various core business areas
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Many brokerages have reported that the introduction of DeepSeek has significantly improved their operational efficiency and increased their level of intelligence, injecting fresh momentum into their future development.
Financial technology firms are also taking action.
On February 7, Jiufang Smart Investment Holdings announced the completion of private deployment for the DeepSeek model, which will be applied in investment research, consulting, risk compliance, and marketingOn February 10, Hang Seng Electronics indicated that its DeepSeek application series is fully integrated with mainstream models (DeepSeek-V3/DeepSeek-R1), covering core business scenarios including investment research, compliance, and operationsOn February 12, Lianlian Digital disclosed its completion of private deployment for the DeepSeek modelThese advancements position financial tech companies to benefit from the AI wave initiated by DeepSeekOn February 13, Tonghuashun announced that its AI platform accessed the DeepSeek model, upgrading three major capabilities, including solving complex business problems, improving collaborative efficiency, and facilitating workflow generation in simple language.
The successful implementation of DeepSeek in the financial industry has significantly enhanced processing efficiency and decision-making precision in application scenarios like compliance inquiries and business transaction guidingThrough customized optimization, financial institutions can lessen their reliance on external technologies while overcoming challenges related to computing power and costs, ultimately reducing deployment costs.
Valuation Recovery Logic Amidst Low Valuation and Performance Expectation Gaps
1. Sector valuations are at historical lows, highlighting cost-effectiveness for investments.
Currently, the brokerage sector's price-to-book (PB) ratio is approximately 1.48 times, below the 35.29 percentile of the last decade, significantly lower than the overall market level
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At the same time, institutional holdings are low, and market attention has not yet fully reflected the policy and performance improvement expectations, presenting considerable room for corrective expectation recovery.
2. Proprietary and asset management businesses are expected to exceed expectations.
As market risk appetite rises, returns on equity assets within brokerages' proprietary investments are expected to increaseAdditionally, the transformation of asset management business towards active management allows leading institutions to benefit from enhancements in both scale and fees, such as CITIC Securities and Huatai Securities, which possess first-mover advantages in equity asset management products.
Moreover, the acquisition of equity in three AMCs by Central Huijin will further enhance the efficiency of financial resource allocation while fortifying the financial system against risksConsequently, the number of brokerages under Central Huijin's actual control increases to sixAmid the push for first-class investment banks, more Huijin-affiliated brokerages raise expectations for brokerage license consolidation, which may accelerate supply-side reforms in the industry.
Institutional Perspectives and Allocation Suggestions
Numerous brokerages hold that now presents a prime window for exposure to the brokerage sectorBank of China Securities suggests focusing on leading wealth management and technologically advanced brokerages;CMS bullishly sees growth amongst tech-oriented firms but emphasizes that brokerages act as "barometers" for the market, proving increasingly resilient in a buoyant liquidity environment; Founder SC highlights the need to watch the accelerated supply-side reforms and mergers and acquisitions as a central line of focus.
According to Founder SC, the securities industry is expected to better leverage its professional advantages in the newly constructed phase of the capital market, supporting the development of a financial powerhouse
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