China brokerage sector has re-rating potential amid dual catalysts from earnings and policy

Overview

This report focuses on sector performance and fundamental changes in the China brokerage industry amid multiple tailwinds. UBS believes the recent sharp rise in China brokerage H-shares has been driven by two main catalysts: first, strong Q2 operating momentum in trading, margin financing and securities lending, IPOs, and fund issuance, supporting listed brokers' earnings; second, continued policy support for capital markets, including the Lujiazui Forum's emphasis on market stability, long-term capital inflows, and expansion of financial instruments, as well as the foreign investment attraction action plan easing access to the derivatives market and fund advisory licenses.

Core views

The core view is that China brokerages have re-rating potential, and leading brokerages are likely to see greater upside leverage. In the short term, strong Q2 market activity may translate into solid earnings and ease selling pressure on the sector; in the medium to long term, regulatory support, non-brokerage capabilities, pricing power, and industry consolidation will help leading brokerages outperform. The report particularly favors CICC (H), CITICS (A/H), HTSC (A/H), and GTHT (A).

Analysis framework

The report combines a top-down analysis of industry catalysts with a bottom-up screen of leading brokerages: it first compares the brokerage index with the Hang Seng Index, CSI300, and other market benchmarks, then tracks high-frequency operating data such as trading value, margin financing and securities lending, IPO financing, fund issuance, account openings, and index moves, and finally assesses the room for sector re-rating based on policy events and valuation levels.

Methodology notes

• Valuation methodP/BV-ROE

  Assessing brokerage valuations by matching price-to-book ratio with return on equity

  The report notes that the target prices for CITIC-A, Huatai-A, and GTHT-A are based on the P/BV-ROE method, which is suitable for brokerage valuations driven primarily by book value and ROE.

• Valuation methodDDM

  Dividend discount model

  The report notes that the target prices for CITIC-H, Huatai-H, and CICC-H are based on the DDM method, reflecting a valuation framework anchored in future distributable cash flow or dividends.

• Rating definitionFSR / MRA

  Expected stock return versus market return assumption

  UBS defines FSR as the sum of expected price appreciation over the next 12 months plus dividend yield, and MRA as the one-year local market rate plus 5%; Buy means FSR exceeds MRA by more than 6 percentage points.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China brokerage H-share sector

  Core beneficiary asset

  Strengths

  Supported by Q2 earnings expectations, policy tailwinds, trading activity, and valuation recovery.

  Weaknesses

  Year-to-date performance is still only slightly down 0.4%, and short-term volatility may rise after some stocks' rapid rebounds.

  Comparison

  Up 6.1% on June 22, clearly outperforming the Hang Seng Index, which fell 0.65%.

  Risks

  Market pullback, declining commission rates, regulatory penalties, and volatility in investment returns.

• China brokerage A-share sector

  Beneficiary asset

  Strengths

  Supported by A-share trading value, margin financing and securities lending balance, IPO financing, and the rebound in CSI300.

  Weaknesses

  Down 6.8% year-to-date, underperforming the CSI300's 9.3% year-to-date gain.

  Comparison

  Compared with H-shares, A-share brokerages have been weaker year-to-date but still have room to recover.

  Risks

  If the A-share market remains subdued for a prolonged period, earnings could decline and valuations could be revised downward.

• CICC (H)

  Preferred name

  Strengths

  The report lists it as one of the top picks, believing leading brokerages can benefit from regulatory support, integrated business capabilities, and structural growth.

  Weaknesses

  Slower-than-expected progress in innovative businesses could weigh on valuation.

  Comparison

  3908.HK rose 7.6% on June 22 and is up 11.0% year-to-date.

  Risks

  Persistent weakness in the A-share market, slower-than-expected progress in innovative businesses, intensified brokerage competition, and declining commission rates.

• CITICS (A/H)

  Preferred name

  Strengths

  Both the A and H shares are rated Buy, with target prices using P/BV-ROE and DDM respectively.

  Weaknesses

  Still highly sensitive to market activity and the regulatory environment.

  Comparison

  6030.HK is up 5.4% year-to-date, while 600030.SH is up 2.4% year-to-date.

  Risks

  Weaker-than-expected A-share market activity, slower innovative business growth, and staff turnover leading to market share and profit declines.

• HTSC (A/H)

  Preferred name

  Strengths

  Both the A and H shares are rated Buy, benefiting from improvements in wealth management, brokerage, and capital intermediary businesses.

  Weaknesses

  There is clear medium- to long-term pressure from brokerage competition and downward commission-rate trends.

  Comparison

  6886.HK is down 5.8% year-to-date, and 601688.SH is down 9.7% year-to-date, leaving room for recovery.

  Risks

  Competition intensifying due to off-site account openings, internet applications, and a growing number of lightweight branches; rising debt financing costs erode capital intermediary returns.

• GTHT (A)

  Preferred name

  Strengths

  Rated Buy, and UBS believes it has opportunities from sector re-rating and consolidation.

  Weaknesses

  The effectiveness of the merger integration remains uncertain.

  Comparison

  601211.SH rose 5.0% on June 22, but is down 11.7% year-to-date.

  Risks

  Integration falling short of expectations, weak profit contribution from capital intermediary business, volatile investment returns, and continued losses in Haitong International's investment business.

Key data

• Single-day performance of China brokerage H-shares+6.1%On June 22, China brokerage H-shares rose 6.1%, while the Hang Seng Index fell 0.65%.
• Year-to-date relative performanceabout +7 percentage pointsAfter the rally, China brokerage H-shares turned to about 7 percentage points of excess return relative to the Hang Seng Index.
• Daily average trading value of A-share stocksRmb2.8 trnUp 1.2x YoY and 9% QoQ so far in Q2.
• Margin financing and securities lending balanceRmb3.0 trnUp 62% YoY and 14% QoQ.
• A-share IPO financing+65% YoY / +91% QoQQ2 IPO financing has rebounded significantly, benefiting investment banking revenue.
• New mixed funds issuedRmb96 bnUp 1.8x YoY, indicating strong retail risk appetite.
• New trading accounts opened5.3mnNew account openings from April to May increased 51% YoY.
• CSI300 performance+13.7% Q2-to-dateCSI300 reversed from a 3.9% decline in Q1 to a 13.7% gain Q2-to-date, benefiting brokerage portfolios.
• Covered brokerage valuation1.2x/0.8x 2026E PBUBS believes valuations are not expensive given earnings improvement and structural growth drivers.

Impact & implications

If trading activity, capital market reform, and policy openness continue, brokerage earnings leverage could be released across brokerage, margin financing and securities lending, investment banking, wealth management, and investment businesses. Leading brokerages, thanks to their comprehensive investment banking, research, and investment capabilities as well as project pipelines related to STAR and ChiNext, are more likely to achieve excess returns in industry consolidation and innovative businesses.

Risks

• A market downturn and looser license access could intensify industry competition.
• Continued declines in commission rates could compress brokerage profitability.
• Smaller-than-expected scale in margin financing and securities lending, as well as stock pledge businesses, could limit profit contribution.
• Regulatory penalties could affect business operations and market reputation.
• Failure in innovative businesses could lead to reputational damage, client attrition, litigation, or other risks.
• Volatility in investment returns could cause earnings to miss expectations.
• Integration falling short of expectations could affect the performance of related names such as GTHT.

What to watch

• Q2 earnings delivery for listed brokerages, especially contributions from brokerage, investment banking, capital intermediary, and investment income.
• Whether the daily average A-share trading value, margin financing and securities lending balance, and new account openings can remain at elevated levels.
• The rollout pace of more inclusive listing standards, mergers and acquisitions, refinancing, and red-chip or Hong Kong-listed companies returning to A-shares on STAR and ChiNext.
• The progress of instrument and channel expansion such as active ETFs, RMB FX futures, 5-year RMB government bond futures, Stock Connect, QDII, and Cross-border Wealth Connect.
• The impact of foreign institution access to the derivatives market and fund advisory license policies on the industry's transition toward a buy-side advisory model.
• Whether leading brokerage valuations can continue to recover from the current roughly 1.2x/0.8x 2026E PB.