HSBC bullish on China securities sector, upgrades multiple stocks

Overview

HSBC’s latest report sees China securities sector valuations at historical lows with solid fundamentals and attractive risk-reward. The bank upgraded CITIC Securities H-share to Buy, initiated CICC A-share with Buy, and refreshed target prices. Despite strong 2025 and 1Q26 earnings, securities stocks have underperformed relevant indices, creating an attractive entry point.

Core views

HSBC highlights five key reasons to be constructive on China securities: 1) Improved trading sentiment: A-share average daily turnover up 107% YoY as of 29 May. 2) Ongoing industry consolidation shifting competition from price-driven to service-driven, supporting commission rate stability. 3) Continued overseas expansion and offshore listings by Chinese corporates; covered brokers lead Hong Kong IPO pipeline. 4) Expected domestic IPO acceleration—regulators have formally advanced CXMT and YMTC listing preparation on STAR Market. 5) Attractive valuations: CICC H-share trades 0.6 standard deviations below historical mean; CITIC H-share and Huatai H-share are 0.5 and 1.3 standard deviations above and below mean respectively. Regulation: CSRC restricted unauthorized cross-border brokerage business; if 50% of Futu and Tiger’s mainland client assets are reinvested via Stock Connect, covered brokers’ commission income could rise 0.02%. Impact on revenue is limited, but the rule should channel investors to licensed brokers, supporting client base and AUM growth. Stock calls: HSBC upgraded CITIC Securities H-share to Buy, citing its ability to further increase leverage, expand high-margin overseas business, and maintain relatively stable ROE in bull markets. CICC H-share remains top pick, as its mergers with Dongxing and Cinda Securities broaden national footprint and its overseas ROE is significantly above domestic (16% vs 9.4% group ROE in 2025), with overseas revenue already 30% of total.

Analysis framework

HSBC employs multiple valuation methodologies including Dividend Discount Model (DDM) and relative valuation. For A- and H-share price gaps, the report incorporates long-term average discounts (e.g., CITIC H-share trades at 32% discount to A-share). Analysis focuses on ROE stability, business mix changes (rising overseas share) and regulatory impacts. Earnings: On strong 1Q results and rising market activity, HSBC raised CICC 2026–27 net profit forecasts by 40–52%, CITIC 2026–28 by 17–18%, and Huatai 2026–27 by 11–13%.

Methodology notes

• Valuation MethodDDM Dividend Discount

  Using Dividend Discount Model (DDM) to derive target prices

  Report applies DDM for A-share target prices, assuming 9.0% cost of equity, 4.25% risk-free rate, 4.75% market risk premium, and beta of 1.0. H-share target prices adjust for CNY/HKD exchange rate and long-term H/A discount.

• Valuation MethodP/NAV Valuation

  Using price-to-net-asset-value (P/NAV) as valuation reference

  In addition to DDM, report references P/NAV metrics, e.g., CICC A-share 2025e P/NAV 1.3× falling to 1.2× in 2026e, as cross-check for valuation reasonableness.

• Industry FrameworkSupply-demand framework

  Analyzing securities sector from supply and demand perspectives

  Report analyzes sector fundamentals from supply side (industry consolidation, licensing) and demand side (rising turnover, IPO acceleration, overseas expansion).

Asset mapping & comparison

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

• CICC (3908 HK / 601995 CH)

  Top pick; high overseas exposure and superior ROE

  Strengths

  Overseas revenue 30% of total, overseas ROE 16% vs group 9.4%; consolidation broadens national footprint

  Comparison

  More pronounced overseas advantage vs peers

  Risks

  Counterparty risk in intermediary business; equity and FICC trading volatility

• CITIC Securities (6030 HK / 600030 CH)

  Upgraded to Buy; market leadership

  Strengths

  Industry leader, ample room to raise leverage, strong overseas expansion capability

  Comparison

  H-share trades at 32% discount to A-share, greater upside

  Risks

  Intensifying competition in brokerage and IB; IPO pipeline delays

• Huatai Securities (6886 HK / 601688 CH)

  Maintain Buy, TP trimmed

  Weaknesses

  A-share retail trading may continue to decline

  Risks

  Competition in traditional brokerage and IB; slower AUM growth

Key data

• A-share average daily turnover YoY growth107%YoY growth as of 29 May
• CICC H-share valuation deviation-0.6 SD0.6 standard deviations below historical mean
• CITIC 2026e net profit revision+17-18%Raised on 1Q results
• CICC overseas ROE16%2025 level, well above domestic business
• Futu/Tiger client asset shift via Stock Connect impact+0.02%Uplift to covered brokers’ commission income

Impact & implications

HSBC sees a clear disconnect between low valuations and improving fundamentals in China securities. As sentiment recovers and regulatory policies become clearer, the sector should re-rate. Head brokers with overseas strengths, such as CICC, will benefit from Chinese corporates’ internationalization and a more active Hong Kong IPO market. For investors, current H-shares trade at significant discounts to A-shares (e.g., CITIC H-share 32% discount), offering more attractive entry points. Accelerating industry consolidation will further strengthen leading brokers’ competitive edge.

Risks

• Tighter regulation could dampen short-term investor sentiment
• High volatility in equity and FICC trading revenues
• Intensifying competition may compress commission rates
• IPO progress below expectations
• Sustained decline in A-share turnover

What to watch

• Trend in A-share turnover
• Hong Kong IPO market activity
• Securities sector consolidation progress
• Cross-border investment regulatory changes
• Overseas business expansion