Bank of China International: Market trading remains active, securities mergers and acquisitions face new developments.

Bank of China International released a research report stating that the market trading volume will maintain a high level in February 2025. As of February 20th, the average daily trading volume of stock funds in the market was 1.34 trillion RMB. As of February 20th, the margin trading balance in the Shanghai and Shenzhen markets was 1.87 trillion RMB, returning to the level in 2021. Market trading remains active, and long-term funds continue to enter the market, with progress in securities mergers and acquisitions accelerating. The current sector valuations and institutional holdings are still relatively low, and the investment opportunities in the securities sector are still favorable. It is recommended to pay attention to securities firms with leading financial technology layouts and wealth management that are more likely to achieve performance elasticity, and to continue to focus on the merger and acquisition theme. The main points of Bank of China International are as follows: Market trading activity has increased, and the wealth business has seen income elasticity. Since October 2024, the sentiment in the A-share market has significantly improved, with the daily trading volume of stock funds continuing to remain above trillion RMB, and the market risk appetite has continued to rise. In February 2025, the market trading volume remained at a high level, with the average daily trading volume of stock funds reaching 1.34 trillion RMB as of February 20th; and the margin trading balance in the Shanghai and Shenzhen markets was 1.87 trillion RMB as of February 20th, returning to the level in 2021. The market investor structure has been optimized, and the trend towards institutionalization is evident. Recently, six departments jointly issued the "Implementation Plan for Promoting the Entry of Medium and Long-term Funds into the Market," which clarified many practical measures for the subsequent entry of medium and long-term funds into the market. The implementation plan focuses on guiding medium and long-term funds to further increase their market entry efforts from a mechanism perspective, upgrading the investment policies and long-term assessment mechanisms of medium and long-term funds, and further clearing obstacles. These include increasing the proportion and stability of A-share investments by commercial insurance funds; optimizing the investment management mechanisms of the national social security funds and basic pension insurance funds; improving the market-oriented investment operation level of enterprise pension funds (and insured pensions); and increasing the scale and proportion of equity funds, among other aspects. Driven by policies, public funds, insurance funds, foreign funds, and other long-term funds are accelerating their entry into the market, and the proportion of institutional investors is expected to trend upward, which is conducive to enhancing market stability and providing growth opportunities for securities firms' institutional businesses and wealth management businesses. Financial technology continues to help securities firms' operations. In recent years, securities firms have continued to increase their investment in financial technology, optimizing business processes and reducing operating costs through technologies such as artificial intelligence, big data, and blockchain. Recently, several securities firms have announced that they are actively integrating DeepSeek's large-scale models or promoting DeepSeek's localization deployment, which helps securities firms improve the efficiency and intelligence levels of business scenarios such as information retrieval, document processing, and industry research, and further promotes the digital transformation of securities firms. Substantial progress in securities mergers and acquisitions has been made again. On February 19th, Guosheng Financial Holding Inc. announced that it had received approval from the China Securities Regulatory Commission to merge its wholly-owned subsidiary, Guosheng Securities, and establish "New Guosheng Securities." Since entering 2025, securities mergers and acquisitions have rapidly progressed, with Western receiving the acceptance of the China Securities Regulatory Commission's application involving the change of equity and actual controller of Guorong Securities and its subsidiaries; Guolian officially renamed as "Guolian Minsheng";Guotai Junan's stock-for-stock merger with Haitong has entered a key stage; Zheshang and Guodu Securities have experienced executive changes, paving the way for subsequent business integration. In addition, the Ministry of Finance plans to transfer its holdings in Changcheng Assets, Dongfang Assets, and other companies to the Central Huijin, involving the adjustment of the equity of Shenwan Hongyuan Group, Dongxing, and Cinda-three securities firms. Investment recommendation The valuation and holding levels of securities firms are relatively low, and it is recommended to continue to focus on investment opportunities in the sector. It is recommended to focus on securities firms with leading financial technology layouts and significant advantages in wealth management business, as they are more likely to achieve performance elasticity in the current market environment, including internet securities firms and top securities firms. Key recommendations include East Money Information (300059.SZ), CITIC SEC (600030.SH,06030), Huatai (601688.SH,06886). Also, securities mergers and acquisitions are expected to continue to make progress, and it is recommended to continue to focus on the merger and acquisition theme. It is important to focus on mergers and acquisitions that complement each other's strengths in securities firms' long-term strategic layout, seek advantages in business scope or regional scope, and can achieve resource integration, promote integration and efficiency improvement. Risk warning If regulatory policies, macroeconomic development, and market liquidity recovery pace are slower than expected, performance recovery may slow down; significant fluctuations in the stock market and interest rates may exacerbate performance fluctuations; the acceleration of capital market opening may bring risks from overseas markets and competition pressure from foreign institutions; homogenized competition may trigger price wars; uncertainties in securities mergers and acquisitions may affect sector price stability.