Haitong kicks off wave of cross-border brokerage ties
Haitong’s purchase of a Portuguese investment bank marks the start of a new wave of cross-border tie-ups in the financial services sector, which could fuel a rally in stocks of Chinese brokerages.
This potential new wave of tie-ups could get further momentum from a nascent stock market rally that has seen Shanghai shares surge over the last two weeks, including a whopping 4.3 per cent gain in the latest trading session on Thursday. The last time we saw single-day changes of that magnitude was back at the height of the financial crisis in 2008, when such wild swings became almost the norm, most of them downward.
Following the massive gains over the last two weeks, the Shanghai and Shenzhen indexes are now up 37 and 40 per cent this year, making them the best performers in Asia. That could help to boost interest in Chinese shares by foreign investors, fuelling the need for more cross-border tie-ups between international brokers and their Chinese counterparts.
That kind of sentiment could be partly behind the recent surge in shares of Chinese brokerages, with Haitong as a good case in point. The company’s Shanghai-listed shares are up a whopping 55 per cent over the last month, while its Hong Kong-listed shares are up by a similar 51 per cent. Of course this latest news could also be fuelling Haitong’s shares, on hopes the new tie-up will help the company funnel new overseas business from Europe to China.
Whereas Citic and Fosun have been two of China’s most outwardly acquisitive firms over the last couple of years, this new move by Haitong could represent a new stage in the outbound M&A story by second-tier players in China’s financial services sector. In addition to outbound M&A, I do expect we could also see some in-bound tie-ups coming in the space, as some of China’s mid-sized and smaller brokerages look for strategic foreign partners amid an ongoing consolidation of the domestic industry.
All of that said, the bigger question becomes: Which companies are best positioned to capitalise on this new wave of tie-ups, and which stocks are the ones to watch? The most likely drivers of the new tie-ups will probably be top-tier Chinese players, and we could also see some top and mid-sized international players make moves into China. As to stocks, the biggest gainers will almost certainly be mid-sized Chinese brokerages that find foreign partners, though some mid-sized foreign players could also get a boost if they find good partners to give them exposure to China market.
