Shenwan Hongyuan Group: Expected 25-year Securities Sector Performance to Increase by 47% Year-on-Year, Focus on Trend of Rebalancing Assets

Shenwan Hongyuan Group released a research report stating that at the end of January, securities firms will gradually disclose their 25-year performance reports. Against the backdrop of increasing trading activity and the bottom-up recovery of investment banking and public fund management businesses, the high-growth momentum of securities firms' 25-year performance has been confirmed. In 2026, wealth management and international business opportunities will bring functional benefits to securities firms, and mergers and acquisitions will optimize the competitive behavior of securities firms and improve resource allocation efficiency. Derivative and other customer demand businesses will open up the leverage ceiling of securities firms, focusing on the Beta properties of the securities sector. The bank recommends 3 investment themes: 1) head institutions with strong comprehensive strength benefiting from the optimization of industry competition; 2) securities firms with greater performance elasticity; 3) targets with strong competitiveness in international business. Key points from Shenwan Hongyuan Group: Earnings forecast: The bank expects that the securities sector will achieve a year-on-year increase in net profit attributable to the parent company of +47% in 2025, with a year-on-year increase in net profit attributable to the parent company of +11% in 4Q25 and a quarter-on-quarter decrease of 25%. The bank predicts that the securities sector will achieve revenue of 586.8 billion yuan in 2025, with main revenue of 570.4 billion yuan (operating income - other income - other business income - asset disposal income), yoy+37% (9M25+44%), achieving a net profit of 217.7 billion yuan attributable to the parent company, yoy+47% (9M25 yoy+62%). Looking at the single quarter situation, the bank predicts that the securities sector will achieve operating income of 167.2 billion yuan in 4Q25, with main revenue of 158.9 billion yuan, yoy+21%/qoq-5%; achieving a net profit attributable to the parent company of 48.7 billion yuan, yoy+11%/qoq-25%. Investment business: In 4Q25, the stock and bond environment did not perform as well as in the first three quarters of the year, leading to a decline in investment income compared to the previous quarter. Stock market: In 4Q25, stocks entered a period of high-level volatility and sector rotation, with incremental fund momentum slowing down. In mid-December, with the start of the year-end rally, the market strengthened again, with the Shanghai Composite Index posting 17 consecutive days of gains (December 17, 2025 to January 12, 2026). In 4Q25, the Shanghai and Shenzhen 300 Index fell by 0.23% (compared to a 2.06% decline in 4Q24), the Science and Technology Innovation 50 Index fell by 10.10% (compared to a 13.36% increase in 4Q24), and the ChiNext Index fell by 1.08% (compared to a 1.54% decline in 4Q24). Bond market: The bond market was volatile in 4Q25, with the China Securities Index falling by 0.08% (compared to a 2.35% increase in 4Q24). The bank expects the securities sector to achieve a total investment income of 58 billion yuan in 4Q25, with a yoy increase of 19% and a qoq decrease of 23% (investment net income - long stock investments + fair value changes + exchange net losses), contributing 37% to main revenue (down from 45% in 9M25, mainly due to a weakening proprietary trading environment and an increase in brokerage and interest net income). Brokerage & Margin Financing: In 4Q25, the average daily turnover and average daily margin balance in the market both exceeded 2 trillion yuan. Market trading performance: In 4Q25, the average daily turnover of stock-based funds was 2.43 trillion yuan, with a yoy increase of 18% and a qoq decrease of 2%; from October to December 2025, the average daily turnover of stock-based funds exceeded 2.1 trillion yuan. The average daily margin balance was 2.49 trillion yuan, with a yoy increase of 40% and a qoq increase of 17%. New account openings: In 4Q25, there were 7.288 million new accounts opened on the Shanghai Stock Exchange, down by 37% yoy and 3% qoq. With the stabilizing mechanism of the A-share market and the effective relocation of resident deposits, the bank predicts that high-level trading activity can be maintained. Based on the marginal decline in commission rates, the bank expects the brokerage business income of the securities sector in 4Q25 to be 46.3 billion yuan, with a yoy increase of 10% and a qoq decrease of 4%, contributing 29% to main revenue (compared to 27% in 9M25); the bank expects the interest net income of the securities sector in 4Q25 to be 16.5 billion yuan, with a yoy increase of 25% and a qoq increase of 16%, contributing 10% to main revenue (compared to 8% in 9M25). Investment Banking Business: Equity business saw moderate recovery due to a low base, while bond business declined marginally. Market performance: Equity business: based on the issuance day basis, the IPO scale in 4Q25 was 54.9 billion yuan, with a yoy increase of 165% and a qoq increase of 44%; the refinancing scale was 80.8 billion yuan, with a yoy decrease of 28% and a qoq increase of 9%. Bond underwriting: in 4Q25, securities firms' bond underwriting scale was 3.8 trillion yuan, with a yoy increase of 0% and a qoq decrease of 8%. Audit end: In 2025, the Listing Committee held a total of 116 IPO review meetings (compared to 57 in 2024, excluding canceled reviews), with 55 reviews in 4Q25. The Fifteen Five-Year Plan clearly deepens the reform of investment and financing, and the investment banking business is trending steadily towards improvement. The "Fifteen Five-Year" Plan has set a clear direction for China's capital market and financial industry, emphasizing the development of direct financing such as equities and bonds, the steady development of futures, derivatives, and asset securitization, highlighting structural opportunities in serving technological innovation, new quality production forces, and the full life cycle of enterprises, providing policy and business support for the high-quality development of securities firms' investment banking business. The bank expects the investment banking business income of the securities sector in 4Q25 to be 12 billion yuan, with a yoy increase of 17% and a qoq increase of 25%. Asset Management Business: Public fund rate reform steadily implemented, with double-digit growth in equity fund scale in 4Q25 Market data: Public fund business: according to Wind statistics (excluding ETF linked fund market value), the non-monetary fund market size at the end of 4Q25 was 21.9 trillion yuan, up 16% from the previous year and 4% from the end of 3Q25; among them, the scale of equity funds was 9.4 trillion yuan, up 24% from the previous year and 11% from the end of 3Q25; the scale of bond funds was 10.9 trillion yuan, up 5% from the previous year and down 3% from the end of 3Q 25. Securities firms' asset management: as of the end of November 2024, the private equity AUM of securities firms and their asset management subsidiaries was 5.8 trillion yuan, up 6% from the previous year and 1% from the end of 3Q25. Public fund rate reform implemented steadily: since 2023, the three-stage rate reform in China's public fund industry has been completed, with a significant reduction in "front-end subscription fees + sales service fees". Management teams, channels, and investors have all adapted to the changes in fees, and the reform has had a substantial impact. The bank expects that as public fund volume increases in the future, asset management revenue is expected to bottom out and rise, with the bank predicting that the asset management revenue of the securities sector in 4Q25 will be 14.5 billion yuan, with a yoy increase of 25% and a qoq increase of 21%. Risk Warning: The progress of resident deposit relocation is slower than expected; the progress of mergers and acquisitions among securities firms is slower than expected; liquidity tightening.