China brokers have entered a re-rating window, and brokers with stronger institutional businesses are more resilient
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China brokers have entered a re-rating window, and brokers with stronger institutional businesses are more resilient
Morgan Stanley believes that stronger A-share activity, recovering IPO and refinancing activity, and improved fund issuance are supporting earnings and valuation recovery for China brokers, with institutional-business leaders such as CITICS, CICC, and HTSC more likely to outperform in 2026.
- 1Q26 A-share average daily turnover rose 71% year over year, 50% higher than the 2025 full-year level, indicating that market activity has clearly rebounded.
- 1Q26 Hong Kong IPOs were up 490% year over year, A-share IPOs up 40% year over year, and refinancing up 90% year over year, showing improved investment-banking conditions.
- New issuance of equity and hybrid funds in 1Q26 rose 42% year over year, indicating that improved retail risk appetite has translated into stronger institutional capital flows.
- CITICS guided to 1Q26 revenue rebound of 40% and profit rebound of 54% year over year, showing that top brokers have earnings support in the current environment.
- The report believes brokerage is becoming commoditized and future differentiation is limited, making institutional clients, investment banking, and derivatives capabilities more critical competitive variables.
Report interpretation
Overview
This report focuses on the China securities sector, with the core view that improving operating trends and valuation multiple divergence will create a re-rating opportunity. It emphasizes that in 1Q26, A-share turnover, Hong Kong and A-share IPOs, refinancing, and equity and hybrid fund issuance all improved significantly, and earnings resilience of top brokers has already started to show. Morgan Stanley believes that brokers with strong institutional business, investment banking, and derivatives capabilities will continue to outperform in 2026.
Core views
First, market activity and capital-market financing recovery is improving the revenue environment for brokers. Second, institutional-business leaders benefit more from concentrated investment-banking fees, growth in derivatives demand, and higher client margin-share. Third, brokerage fee compression is taking hold as the share of institutions and high-frequency trading rises, limiting future differentiation. Fourth, East Money’s equity fund AUM share may be pressured by top wealth-management banks and major internet platforms. Fifth, potential catalysts for the sector include A-share financing reform, higher leverage caps for leading brokers, and final implementation of derivatives regulation.
Analysis framework
The report combines industry sentiment, market-share shifts, business-line segmentation, and relative valuation comparisons, tracking indicators such as trading volume, IPOs, refinancing, fund issuance, investment-banking share, derivatives notional principal, brokerage trading-share, and client margin-share, and assesses rerating potential by comparing ROE trends and current valuation versus Morgan Stanley target valuation gaps from the charts.
Methodology notes
Assessing the broker revenue environment through changes in A-share average daily turnover, IPOs, refinancing, and fund issuance.
These indicators each correspond to brokerage, investment banking, capital-markets, and wealth-management-related income, and are strongly indicative of broker earnings resilience.
Comparing share changes in investment banking, derivatives, brokerage turnover, and client margins.
The report argues that institutional-business capability and client resources explain future differentiation better than traditional brokerage pricing.
Comparing current valuations of Galaxy-H, CMS-H, HTSC-H, GFS-H, CITICS-H, and CICC-H against Morgan Stanley target valuations.
The charts show most H-share brokers trading below MS targets, supporting a rerating opportunity assessment.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China International Capital Corp. Ltd. (3908.HK)One of the key beneficiaries; stock screen rating O
- Strengths
- Investment-banking share rose by 3.9ppt, derivatives notional principal was up 39% year over year, and institutional-business capability is strong.
- Weaknesses
- The report does not provide detailed company-level earnings forecasts, and Morgan Stanley disclosed potential advisory, shareholding, or other interest conflicts.
- Comparison
- Compared with most peers, CICC is more prominent in gains in investment-banking and derivatives shares; the chart shows CICC-H currently at 0.59, below the MS target of 0.96.
- Risks
- A pullback in capital-market activity, tighter derivatives regulation, and variability in the investment-banking deal cycle.
- CITIC Securities Co. (6030.HK)Top broker and sector benefactor; H-share rating E in stock screen
- Strengths
- 1Q26 revenue rebounded 40%, profit rebounded 54% YoY; investment-banking share rose 4.2ppt in 2025, derivatives notional principal rose 29% year over year, and client margin share rose 1.1ppt.
- Weaknesses
- Brokerage fees are under downward pressure as the share of institutions and high-frequency traders rises, and turnover-share gains have not fully translated into fee-income-share gains.
- Comparison
- It has the highest increase in investment-banking share among the listed companies; the chart shows CITICS-H currently at 0.93, below the MS target of 1.23.
- Risks
- Fee pressure, regulatory changes, and a pullback in market turnover.
- HTSC (6866.HK)Beneficiary from improved institutional and investment-banking share
- Strengths
- Investment-banking share rose 1.9ppt in 2025 and it is listed as one of the strong institutional-business brokers.
- Weaknesses
- The report did not disclose its 1Q26 profit-resilience details.
- Comparison
- Grouped with CITICS and CICC as investment-banking share improvers; the chart shows HTSC-H currently at 0.56, below the MS target of 0.76.
- Risks
- Investment-banking recovery underperforms expectations and competitive intensity increases.
- GF Securities (000776.SZ)Beneficiary of improved derivatives business; stock screen rating E
- Strengths
- 2025 equity derivatives notional principal rose 19% year over year, and investment income share increased by 2.2%.
- Weaknesses
- The report does not show its investment-banking share-improvement data.
- Comparison
- Derivatives growth is lower than CICC and CITICS but materially better than CMS and Galaxy; the chart shows GFS-H currently at 0.60, below the MS target of 0.75.
- Risks
- Volatility in derivatives demand and uncertainty around final regulatory implementation.
- East Money Information Co Ltd (300059.SZ)Internet broker and wealth-management platform; stock screen rating E
- Strengths
- Still included as a covered name and benefits from improved market activity.
- Weaknesses
- The report estimates East Money’s equity fund AUM share fell 56bps in 2025, potentially being diverted to top wealth-management banks and major internet platforms.
- Comparison
- Compared with top brokers with stronger institutional business, pressure on wealth-management share is more pronounced.
- Risks
- Continued loss of fund distribution share, brokerage fee pressure, and competition from internet platforms.
- China Merchants Securities Co Ltd (6099.HK)Covered name; stock screen rating U
- Strengths
- Benefits from improved industry trading and financing conditions.
- Weaknesses
- 2025 equity derivatives notional principal declined 42% year over year, making it relatively weak among peers listed in the report.
- Comparison
- Derivatives trend is weaker than CICC, CITICS, and GFS; the chart shows CMS-H currently at 0.69, slightly above the MS target of 0.68.
- Risks
- Declining institutional-business share and limited valuation recovery upside.
- Galaxy Securities (6881.HK)Covered name; stock screen rating E
- Strengths
- Benefits from improving industry sentiment and higher trading activity.
- Weaknesses
- 2025 equity derivatives notional principal declined 16% year over year.
- Comparison
- Derivatives trend is weaker than CICC, CITICS, and GFS; the chart shows Galaxy-H currently at 0.52, below the MS target of 0.63.
- Risks
- Institutional-business competitive pressure and volatility in market activity.
Key data
- 1Q26 A-share average daily turnover+71% YoY; 50% above 2025 full-year levelIndicates significantly improved trading activity.
- 1Q26 Hong Kong IPOs+490% YoYShows recovery in capital-market financing in Hong Kong.
- 1Q26 A-share IPOs+40% YoYImproved investment-banking environment.
- 1Q26 A-share refinancing+90% YoYRefinancing recovery benefits top investment banks.
- 1Q26 new issuance of equity and hybrid funds+42% YoYImproved retail risk appetite has transmitted into institutional capital flow.
- CITICS 1Q26 guided revenue+40%The report says its revenue rebounded.
- CITICS 1Q26 guided profit+54% YoYShows profit resilience of top brokers.
- 2025 investment-banking market-share changesCITICS +4.2ppt; CICC +3.9ppt; HTSC +1.9pptUnderwriting-fee concentration increased.
- 2025 equity derivatives notional principal changesCICC +39%; CITICS +29%; GFS +19%; CMS -42%; Galaxy -16%Demand from institutional investors has pushed market-share gains for leading brokers.
- East Money equity fund AUM share-56bpsThe report estimates a 2025 share loss for East Money, possibly flowing to top wealth-management banks and major internet platforms.
Impact & implications
If stronger trading activity, financing recovery, and improved institutional flows persist, the brokerage sector’s earnings and valuations may continue to recover; however, gains are likely to be more concentrated among top brokers with strong institutional clients, investment banking, and derivatives capabilities. As brokerage becomes more commoditized and pricing pressured, it is unlikely to offer significant differentiation, while wealth-management platforms may face share competition from banks and major internet platforms.
Risks
- A retreat in market turnover could weaken the resilience of brokerage, financing/short selling, and wealth-management income.
- If recovery in IPO and refinancing activity is not sustained, improvements in investment-banking profits may fall short of expectations.
- Uncertainty in final derivatives regulatory rules could affect growth in related businesses for leading brokers.
- Brokerage commoditization and fee compression may limit transmission from higher turnover to higher income.
- Morgan Stanley disclosed potential investment-banking, non-investment-banking, market-making, or other service relationships with multiple covered companies, and investors should note potential conflicts of interest.
What to watch
- Progress of A-share financing reform.
- Whether a higher leverage cap for top brokers is implemented.
- Final rules for derivatives regulation.
- Whether 1Q26 A-share average daily turnover can remain elevated.
- Whether recovery in Hong Kong and A-share IPOs and refinancing persists.
- The scale of new equity and hybrid fund issuance and changes in East Money fund AUM share.
- Whether institutional-business shares of CITICS, CICC, HTSC, and GFS continue to rise.