BOC International: Policy measures are expected to boost market confidence, optimistic about the beta trend of the securities sector.

BOC International released a research report stating that there is significant room for upward valuation repair in the brokerage sector, and the strengthening policy expectations are expected to boost market confidence, leading to sector valuation repair. Market risk preference and trading activity are expected to rebound, with optimism for the brokerage sector's beta market, with more benefits for "Internet +" brokerages; mergers and acquisitions remain an important investment theme for the sector. China Construction Bank believes that brokerages with strong funding advantages and certain M&A experience may be more likely to enhance the effectiveness of mergers and acquisitions. It is recommended to continue monitoring brokerages that have already announced M&A plans and their progress, and also to focus on CICC (601995.SH) and China Galaxy (601881.SH). Key points from BOC International: The market welcomes incremental funding to boost trading activity, which is expected to help repair the fundamentals of brokerage firms. Capital market policies are introducing incremental funding to the market: creating convenient tools for securities, funds, and insurance companies to exchange, where the funds obtained can only be used to invest in the stock market; creating stock repurchase and margin increase loans to guide commercial banks to provide loans to listed companies and major shareholders for repurchasing and increasing holdings of listed company stocks. We believe that the above policies are expected to directly bring incremental funding to the capital market, combined with real estate policies and other monetary policies, which are conducive to promoting active trading in the market, improving risk preferences. The central bank's attitude towards future policies such as exchange convenience and stock repurchase and margin increase loans is relatively open, which is expected to continue to boost market confidence and alleviate the pressure on brokerage firms due to insufficient demand in the capital market investment side, such as wealth management business. We expect these policies to play a significant supportive role in the marginal recovery of the fundamentals of brokerage firms. The exchange convenience tools help expand the sources of self-operated funds for brokerage firms. The People's Bank of China has created convenient tools for securities, funds, and insurance companies, which support eligible institutions to use their own bonds, stock ETFs, and Shanghai and Shenzhen 300 index stocks as collateral to exchange them for government bonds, central bank bills, and other highly liquid assets from the central bank. Institutions using these convenience tools are required to invest in the stock market. The initial scale of the exchange convenience operation is 500 billion yuan, and the scale may be expanded in the future according to the situation. This move is conducive to enhancing the ability of brokerage firms to obtain funds and increase holdings of stocks. In the long run, it is favorable for the optimization of the business environment of brokerage firms and the overall improvement of business resilience. 1) Introducing incremental patient capital: The China Banking and Insurance Regulatory Commission introduces incremental long-term capital from multiple sources such as insurance companies, wealth management companies, and trust companies. The China Securities Regulatory Commission has also stated its intent to accelerate investment side reforms and release policies on long-term capital entering the market, further supporting efforts by the China Investment Corporation to increase holdings. In the long term, the increase in the proportion of long-term capital in the capital market is conducive to enhancing the intrinsic stability of the capital market and is also beneficial for the growth of brokerage firms' service businesses. 2) Improving the quality of listed companies: The China Securities Regulatory Commission continues to emphasize cracking down on market illegal activities, encouraging listed companies to increase dividends and repurchases to enhance investor satisfaction, and stating that market value management guidelines will be issued. Overall, the long-term capital market policies are conducive to the optimization of the business environment of brokerage firms and the improvement of overall business resilience, providing support for the long-term increase in valuation central axis. 3) Active merger and reorganization market: The China Securities Regulatory Commission encourages mergers and acquisitions activities aimed at enterprise transformation and upgrading, which will also continue to help reasonably increase the industrial concentration of traditional industries. The commission has released "six merger and acquisition measures," simplifying the approval process for eligible listed companies. According to the actual situation, the regulatory tolerance for the valuation of mergers, performance commitments, etc., is increased. We expect that the restructuring business will gradually bring incremental performance, and the pace of brokerage mergers and acquisitions may also accelerate. Risk warning If regulatory policies, macroeconomic development, and market liquidity recovery are slower than expected, performance improvement may slow down; significant fluctuations in the securities market and interest rates may exacerbate performance volatility; accelerated opening of the capital market may bring overseas market risks and competition pressure from foreign institutions; homogenized competition may lead to price wars; uncertainty in brokerage mergers and acquisitions may affect sector price stability.