Soochow: Securities firms going international show a concentrated feature in leading companies, optimistic about the contribution of international business to performance.

Soochow issues a research report stating that it is optimistic about the performance of the international business of the securities industry gradually improving, and top securities firms with first-mover advantages will fully benefit. The overseas expansion of securities firms shows a significant concentration among top players, with the Matthew effect continuing to intensify, driven by the leading positions of top securities firms in terms of first-mover advantage, capital barriers, client resources, and licensing layout. Taking into account the progress of securities firms' internationalization, contribution of overseas business revenue, and level of capital investment, the report focuses on top securities firms that have the ability to build a global service network, achieve high efficiency in overseas business profitability, and continuously increase their investments in international business. Soochow's key points are as follows: Multiple drivers resonate, securities firms' overseas expansion enters a strategic opportunity period 1) Policy empowerment: Top-level strategic guidance combined with improved supporting mechanisms solidify the foundation for securities firms' overseas expansion policies. At the national strategic level, securities firms' overseas expansion is an inevitable requirement for a financially strong country and a highly open capital market. The ability to effectively promote overseas expansion and build cross-border business capabilities has become an important yardstick for regulators to assess whether securities firms have first-class potential. At the industry regulatory level, the supporting mechanisms for securities firms' overseas expansion are gradually improving, strengthening the foundation for their overseas expansion. The improvement of the connectivity mechanism, the continuous reform of the QFII/RQFII system, and the pilot of cross-border innovative businesses have built core infrastructure connecting domestic and foreign markets for securities firms. 2) Market expansion: There is ample room for business expansion, and opportunities for multiple business lines are emerging. China's Hong Kong and other emerging markets provide diverse business expansion opportunities for securities firms. The reform of the IPO system of the Hong Kong Stock Exchange is gradually being implemented, leading to a significant expansion of the Hong Kong IPO market. Emerging capital markets in Southeast Asia, the Middle East, and elsewhere are reaching crucial turning points in unleashing their potential, providing an ideal platform for securities firms' overseas expansion. 3) Profit optimization: Overseas business leverages advantages, with significantly higher ROE compared to domestic business. In the first half of 2025, the overseas subsidiaries of CITIC, CICC, Huatai, and GF had ROE figures of 11.6%, 8.5%, 4.6%, and 5.7% respectively, significantly exceeding the overall company ROEs (4.6%, 3.7%, 3.9%, 4.3%). The main reasons are that foreign subsidiaries face relatively lenient capital supervision, operate with higher leverage, and have a higher proportion of high-value-added businesses, all of which collectively contribute to achieving better ROE performance for overseas subsidiaries. Securities firms' international business steadily advances, with ample growth potential 1) The contribution of overseas business is steadily increasing, with capital-intensive investments under a trend of concentration among top players. In the layout trend of "Hong Kong as the foundation, global radiation", the proportion of revenue from overseas business of Chinese securities firms is steadily increasing, becoming an important component of industry revenue and profitability. The compound annual growth rate of the sample securities firms' overseas business income from 2018 to 2024 reached 20%, significantly higher than the overall revenue compound growth rate. The competitive landscape is dominated by the "two superpowers and two strong players", with top securities firms forming a strong position with first-mover advantages, capital barriers, and client resources, leading to continued concentration of resources towards the top. Since 2025, the industry has seen significant capital injections into overseas subsidiaries, with top securities firms making large capital increases while mid-sized securities firms accelerate their entry, moving from a passive to an active strategic investment in overseas expansion, implying a broad long-term growth space. 2) Investment returns dominate, with synergy across multiple businesses. Currently, the revenue structure of securities firms' overseas business is centered around investment returns, with wealth management and investment banking business as important support. In terms of cross-border business, large securities firms are showing clear differentiation in performance; investment banking business has taken a leading position in the Hong Kong IPO market, but it still lags behind global top players in overall competitiveness; brokerage business has a relatively low market share in the Hong Kong stock market, with ample room to expand overseas local channels and clients. There is still ample room for overseas expansion, with growth potential across all business lines 1) There is still a gap compared to top international investment banks, with ample room for growth. In 2024, the combined revenue of international businesses of the top four Chinese securities firms was only 25% of Goldman Sachs' overseas business revenue; the average revenue contribution of international business of Chinese securities firms is about 10%, still lagging behind global top companies like Goldman Sachs (around 40%). Currently, Chinese securities firms' international business is still in the early stages of development, with regional distribution highly concentrated in Hong Kong, client structures dominated by Chinese entities, and a need for improved capital and resource investment. With the improvement of global networks, deeper client penetration, and continuous capital injections, international business is expected to transition from a supplementary sector to a core growth engine, with significant potential for profit contribution. By 2030, the industry's overseas business revenue is expected to exceed 100 billion yuan. 2) All business lines are facing development opportunities, with the industry expected to achieve cross-border expansion across the entire business chain. In terms of cross-border proprietary trading, given the "asset shortage" and low-interest rate environment domestically, moderately increasing exposure to overseas fixed income securities is a necessary measure for securities firms to stabilize their proprietary investment returns. In investment banking, the steady expansion of Chinese enterprises' overseas investments is driving the demand for cross-border investment banking services. In wealth management, channels for cross-border asset allocation for residents are becoming more diverse, and the related demands are gradually being met. Risk warning: 1) Macro-economic performance falls short of expectations; 2) Tightening policies may suppress industry innovation; 3) Intensified market competition poses risks.