May A-Share ADT Hits Record High, Maintaining Constructive Industry View

Overview

This is J.P. Morgan's monthly report on China's securities industry. The report indicates comprehensive improvement in securities firms' operational data for May, with A-share average daily turnover (ADT) reaching 3.21 trillion yuan, setting a new historical high. Investor sentiment has improved, with increases in margin trading balance and new account openings. The institution maintains a constructive view on the industry, with long-term preference for CICC H-shares and CITIC Securities A-shares. In the short term, the institution favors Guotai Junan's performance and recommends a pair trade of going long Guotai Junan H-shares while shorting CITIC Securities H-shares.

Core views

Operational data shows May A-share ADT reached 3.21 trillion yuan, up 36% MoM and 164% YoY, setting a new historical high. Margin trading balance exceeded 2.9 trillion yuan, with monthly new brokerage accounts rising to 2.77 million, up 11% MoM. Driven by strong capital market performance (STAR 50 Index rose 11% in May and 39% since Q2) and increased derivatives trading demand, securities firms' investment income is expected to rebound strongly. Although IPO activity slowed seasonally, project pipelines remain robust. At the company level, CICC convened its second board meeting, approving detailed merger plans that clarify integration timelines, roadmaps, and synergy frameworks, which the institution views positively. CITIC Securities announced raising 16 billion HKD through an H-share private placement to major shareholders, with estimated actual EPS dilution potentially less than the capital expansion ratio. Guotai Junan (GTJA) is seen as a key beneficiary of the recent STAR Market rebound, with expected strong Q2 performance; the institution considers its valuation reasonable and assigns a Neutral rating. Additionally, the CSRC released new Derivatives Trading Management Measures (Provisional), effective November 2026. The measures encourage derivatives use for hedging and risk management, restrict excessive speculation, and set net capital thresholds for securities and futures firms engaging in derivatives business (consistently no less than 500 million yuan RMB over the past six months). The institution believes clearer regulatory frameworks will benefit industry derivatives business growth, particularly favoring top-tier securities firms.

Analysis framework

The institution primarily tracks high-frequency monthly data (such as average daily turnover, new account openings, and margin trading balance) to assess the vitality of securities firms' brokerage and capital intermediary businesses, thereby gauging short-term earnings elasticity. Simultaneously, it combines major market index performance (such as STAR 50 and CSI 300) to infer revenue from proprietary investment, IPO follow-on investments, and bond investment businesses. In stock selection, the institution considers not only fundamental valuations but also specific event-driven factors (such as CICC's merger integration and CITIC's dilutive private placement) and short-term earnings catalysts (such as Guotai Junan's Q2 performance), developing specific investment strategies including pair trades.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Average Daily Turnover (ADT)

  As a core indicator measuring brokerage business activity in the securities industry, ADT directly determines securities firms' commission income levels. The report tracks ADT's MoM and YoY changes to forecast short-term earnings elasticity for securities firms.

• Event-Driven Trading & Behavioral FinancePair Trade

  Long Guotai Junan H / Short CITIC H

  A risk-hedging trading strategy. The institution constructs a long-short portfolio based on the differing sensitivities of the two companies to market activity (ADT) and their specific events (such as Guotai Junan's earnings catalyst versus CITIC Securities' dilutive private placement), aiming to capture relative returns.

Asset mapping & comparison

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

• CICC-H (3908.HK)

  Long-term Preferred

  Strengths

  Detailed merger plan, clear synergy framework, rich pipeline of investment banking projects

  Comparison

  Leading market share in H-share IPOs, clear merger integration progress

• CITIC Securities-A (600030.SS)

  Long-term Preferred

  Strengths

  Industry leadership, H-share private placement for expanding international business

  Risks

  Potential equity dilution from H-share private placement

• Guotai Junan-H (2611.HK)

  Short-term Long Target

  Strengths

  Benefiting from STAR Market rebound, strong Q2 performance expectations

  Weaknesses

  Valuation reasonable compared to peers

  Comparison

  Higher sensitivity to ADT recovery than CITIC Securities

• CITIC Securities-H (6030.HK)

  Short-term Short Target

  Weaknesses

  Lowest brokerage revenue exposure among covered firms, dilutive impact from H-share private placement

  Comparison

  Less benefited from recent high ADT environment than Guotai Junan

Key data

• A-Share Average Daily Turnover (May)3.21 trillion yuanUp 36% MoM, record high
• Margin Trading Balance (End of May)2.91 trillion yuanUp 7% MoM
• Monthly New Brokerage Accounts (May)2.77 millionUp 11% MoM
• STAR 50 Index Performance (May)+11%Driving recovery in securities firms' investment income
• Monthly Public Fund Sales (May)98 billion yuanDown 1% MoM, up 20% YoY

Impact & implications

The comprehensive strength in May's operational data confirms the industry's improving vitality, supporting the institution's constructive view. The new derivatives regulatory framework clarifies rules; while setting capital thresholds, it generally benefits the long-term healthy development of derivatives businesses, with top-tier securities firms better positioned. CICC's merger plan provides a clearer integration path, helping eliminate uncertainty. Although CITIC Securities' private placement may cause short-term dilution, the institution believes the actual impact is manageable, maintaining long-term optimism for both its A and H shares.