Dongxing: Securities industry profits gradually realized, sector valuation repair expected.

Dongxing released a research report stating that, under the uncertainty of the macro environment, more policy incentives can be expected in the second half of the year, and the strength of the policies will largely determine the performance of the industry and the valuation recovery. If the equity market can continue to maintain an upward trend, innovations in brokerage businesses and leverage improvements are expected to "turn expectations into reality." Top-down driving force may become the dominant force, but driven by the goal of increasing/maintaining market share, brokerage firms actively seeking integration and related merger activities may increase. In conclusion, in the second half of 2026, the bank continues to be optimistic about the investment opportunities of top institutions in the industry under the long-term innovative development model, and the targets with high investment value currently remain concentrated on undervalued stocks. Emphasizes the need to pay attention to the investment value of securities ETFs and, with reference to overseas experiences, as market efficiency improves, market preferences may continue to tilt towards index investments. Dongxing's main points are as follows: In the first half of the year, domestic capital markets showed a high degree of differentiation, and the securities sector saw a slight decline. Since the beginning of the year, the internal and external environments have remained complex, with frequent and increasingly intense global geopolitical events, resulting in significant uncertainty in the depth and breadth of overall impact. Domestic equity market volatility has also intensified, with significant performance differentiation between sectors. As of June 26, 2026, the Shanghai Composite Index, Shanghai 50, Shanghai Shenzhen 300, and the Shenwan Two-Level Securities Index had risen by 1.47%, -4.10%, 5.15%, and -9.24% respectively over the year, with the securities sector performance lagging behind the core market broad-based index. The ratio of rising to falling stocks for the year is 7:43, with more declining stocks than rising stocks, and a difference of over 110 percentage points between the top and bottom performers. Looking ahead to the second half of the year, the more complex domestic and foreign macro environment is likely to continue to have a sustained impact on domestic capital markets, with interest rates, exchange rates, and liquidity being the immediate concerns. As the global pivot from a rate-cutting cycle to a rate-hiking cycle emerges, and against the backdrop of domestic inflation rising, there may be limited downside room for domestic interest rates to continue to decline. In terms of exchange rates, expectations of a US rate hike have risen significantly, and the strengthening trend of the US dollar may shake the foundation for a continued appreciation of the RMB; liquidity-wise, geopolitical risks remain high, the trend towards deglobalization is intensifying, and if supply-side inflation pushes the global economy into a comprehensive rate-hiking cycle, volatile liquidity fluctuations are likely to become a high probability event. The securities industry policies in the second half of 2026 may be more targeted and forceful, and as the capital market continues to improve, business innovation and improving capital utilization efficiency are expected to become focal points of industry policy, potentially leading to a continuous improvement in performance and valuation recovery in the securities industry. Since the beginning of the year, the average daily trading volume in Shanghai, Shenzhen, and Beijing has significantly increased year-on-year. Margin balances have shown a more stable growth trend, surpassing the 3 trillion mark. With the continued release of various favorable policies and the continuous development of the innovation-driven market, investors' risk appetite has gradually improved and leverage usage has become more active. At the same time, against the backdrop of continuous decline in domestic deposit rates and the real estate market entering an adjustment phase, the effectiveness of regulatory agencies and various intermediaries' continuous investor education efforts has gradually become evident, coupled with the stabilizing and improving demonstration effect of the equity market, the shift of household asset allocation to the equity market is expected to become a long-term trend, driving the acceleration of the development of brokerage wealth management businesses. The bank sees that since 2026, regulatory bodies have given more policy support to technology growth enterprises, from lowering the listing threshold, optimizing listing standards, accelerating the approval process, streamlining the listing process, all of which have effectively activated the primary market, with IPO and private placement scales significantly increasing. The increase in business scale has driven rapid revenue growth in related brokerage businesses, and fundraising for growth enterprises through IPOs has become a battleground for brokerage investment banks. Meanwhile, since the market stabilization since September 24, investor confidence has continued to strengthen, the willingness of companies to fundraise has significantly increased, and the positive feedback loop between the "capital market-listed companies-investors" is forming, which is also an important factor in the increasingly active primary market. The bank believes that with continuous policy support and the ongoing improvement of the equity market, the scale increment of investment banking business in the second half of 2026 and the full year can still maintain high expectations, and market feedback on primary market financing is expected to be more positive, and the linkage between the primary and secondary markets is expected to strengthen further as related capital market systems are continually improved and the process of "raising funds for investment projects and withdrawing" becomes smoother. In the current trend of structural changes in brokerage business, the continuously increasing scale implies that the stability and sustainable growth capability of proprietary investment become key factors determining investment performance and even overall brokerage performance. The bank believes that while proprietary investment has become a key breakthrough point for securities firms to improve profitability and surpass comparable peers, in the face of the drastic fluctuations in stocks and bonds markets, blind expansion of proprietary businesses is not advisable, and whether the research teams and systems can support growth becomes a key factor. At a time when brokerage firms are accelerating the layout of proprietary investment business, the stability of investment income growth is an important consideration of business capacity, requiring the achievement of a dynamic balance between high beta and stability. In the second half of 2026, under the combined impact of various internal and external factors, high volatility may be difficult to avoid, and top brokerage firms with more balanced proprietary asset allocation structures, strong allocation capabilities, and relatively sound risk control systems, as well as the ability to focus on off-exchange derivative markets and have multiple risk hedging mechanisms, may have relatively greater adjustments in large asset allocations, with investment performance still possessing high growth certainty. Risk reminders: Macroeconomic downturn risks, policy risks, market risks, liquidity risks.