CICC, Citic Securities lead gains among Chinese brokerages as regulator lowers risk control requirements in bid to boost capital market

Move opens door for brokerages to ‘boost their leverage levels and improve their return-on-equity ratio,’ says analyst
A gauge tracking 54 mainland-listed securities firms jumped 4.3 per cent for the biggest gain in three months

China stock market

Zhang Shidongin Shanghai

Published: 6:42pm, 6 Nov 2023

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Shares of China International Capital Corp (CICC), Citic Securities and other Chinese brokerages rallied in Hong Kong and the mainland after the securities regulator proposed easing the risk controls they need to put in place and said it would support mergers and acquisitions among leading players to build them into world-class investment banks.

CICC led the gains among brokerages trading in Hong Kong, with an almost 8 per cent surge on Monday. The industry’s other major players, Citic Securities and Haitong Securities advanced 5.6 per cent to HK$16.50 and 4.9 per cent to HK$4.71 respectively.

A gauge tracking 54 mainland-listed securities firms jumped 4.3 per cent for the biggest gain in three months, according to financial data provider Shanghai DZH.

The buying spree came after the China Securities Regulatory Commission (CSRC) published a proposed change to the way risk weightings for brokerages are calculated on Friday evening. The capital requirement ratio for risk at asset management businesses would be cut by at least 0.2 percentage points to 0.1 per cent, and the provisions for non-derivative proprietary trading and credit businesses would be cut by 20 per cent for brokerages rated AA for three consecutive years, according to the draft rule, which will seek public feedback for the next month.

Meanwhile, the stock market watchdog said it would support the expansion of major securities firms, after top leadership at last week’s twice-a-decade central finance work conference chaired by President Xi Jinping demanded measures to boost the industry.

“It has opened the door for good quality brokerages to boost their leverage levels and improve their return-on-equity ratio,” said Luo Zuanhui, an analyst at Shenwan Hongyuan Group in Shanghai.

Citic Securities, the nation’s biggest publicly traded brokerage, upgraded its recommendation on the industry to “outperform” after the CSRC draft was published, citing the scope for securities firms to increase their leverage level and the likelihood of the measures boosting the capital market.

Hong Kong-traded shares of CICC have dropped 8.1 per cent this year and those of Haitong Securities have lost almost 2 per cent, while the stock of Citic Securities has risen 4.6 per cent. The gauge tracking the mainland-listed securities firms has advanced 16 per cent.

“We have optimised the standard for the calculation of risk-control indicators regarding brokerages’ involvement in businesses like market making, asset management and [real estate investment trusts],” the CSRC said in a statement on Friday.

“That will further guide securities firms to ramp up their efforts at the investment, financing and trading ends to adopt long-term value investing, serve fundraising in the real economy and citizens’ wealth management.”

The watchdog has not yet been successful in bolstering the US$9.4 trillion onshore stock market even after a slew of supportive measures introduced recently, including a cut in the stamp duty and the imposition of restrictions on stake reductions by big shareholders and short selling. The CSI 300 Index rose 1.4 per cent on Monday, paring the year’s loss to 6.2 per cent.

Net income for Chinese brokerages rose by an average of 7.1 per cent from a year earlier in the first three quarters, with revenue increasing 1.2 per cent, according to Dongguan Securities.

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