Soochow: Active trading drives an increase in fee-related businesses, with sci-tech investments boosting performance growth.

Soochow released a report stating that the average daily trading volume of stock funds in the first half of 2026 reached 33 trillion RMB, an increase of 99% year-on-year. Both domestic and overseas IPOs have warmed up, further increasing concentration; bond issuance has increased steadily. The equity market has shown structural trends, with the bond market performing better than the same period last year. In the first half of 2026, the net profit of listed securities firms increased by 49% year-on-year, with a net profit growth of 79% year-on-year and 55% quarter-on-quarter in the second quarter. Currently, the valuation of securities stocks is relatively low, and investment in science and technology as well as international business is expected to drive the industry's ROE center upward, providing significant room for future growth. Considering the positive development policies in the industry and a trend of further increasing concentration, the firm believes that large securities companies still hold significant advantages. The main points from Soochow are as follows: In the first half of 2026, the equity market performed remarkably, with trading activity significantly rebounding. 1) In the first half of 2026, the average daily trading volume of stock funds reached 33 trillion RMB, up by 99% year-on-year. The average number of new accounts opened monthly by investors in the Shanghai Stock Exchange was 3.67 million, increasing by 56% from 2.35 million in the same period last year. 2) As of the first half of 2026, the financing balance was 29.228 trillion RMB, a year-on-year increase of 59%. The average maintenance guarantee ratio was 288%, up 24 percentage points year-on-year, remaining at a high level. 3) The financing scale of domestic and overseas IPOs has rebounded. In the first half of 2026, a total of 101 IPOs were issued, raising 95.4 billion RMB, a year-on-year increase of 155%. The average fundraising size per company was 940 million RMB, an increase of 29% from 730 million RMB in the first half of 2025. In the same period, 84 IPOs were issued in the Hong Kong market, a year-on-year increase of 95%, with a fundraising scale of 208.9 billion HKD, up 92% year-on-year. 4) The refinancing scale saw a year-on-year contraction from a high base. The total fundraising for refinancing was 358.3 billion RMB, a decrease of 51% year-on-year, of which 322.6 billion RMB was raised through new share issues, down 54% year-on-year. 5) The issuance scale of bonds increased steadily. In the first half of 2026, the bond issuance scale involving securities firms reached 8.5 trillion RMB, a year-on-year increase of 14%. 6) The equity market exhibited a structural trend, and the bond market performed better than the same period last year. In the first half of 2026, the main broad-based A-share indices generally increased, with the ChiNext Index's growth far exceeding other indices; affected by record IPO fundraising and external factors, the Hong Kong stock market continued to decline. 7) The issuance of equity-based public funds rebounded. In the first half of 2026, the issuance of stock and mixed public funds increased by 60% year-on-year to 378.2 billion units, with index and enhanced index funds accounting for 38%; the issuance scale of bond funds decreased by 49% to 127.3 billion units. The overall issuance of public funds increased by 21% year-on-year to 637 billion units. Listed securities firms achieved a net profit attributable to shareholders of 1.672 billion RMB in the first half of 2026, an increase of 49% year-on-year. The 50 listed securities firms or their parent companies collectively achieved an operating income of 389.5 billion RMB in the first half of 2026, an increase of 45% year-on-year, resulting in a total net profit attributable to shareholders of 167.2 billion RMB, a year-on-year increase of 49%. In March 2025, Guotai Junan's merger with Haitong resulted in negative goodwill, bringing in 8.5 billion RMB in non-operating income; excluding this non-recurring gain and loss, the net profit attributable to shareholders of listed securities firms would have increased by 61% year-on-year. In the second quarter, the 50 listed securities firms collectively achieved a net profit attributable to shareholders of 101.6 billion RMB, a year-on-year increase of 79% and a quarter-on-quarter increase of 55%. The average ROE of the 50 listed securities firms was 4.5% in the first half of 2026, an increase of 1.09 percentage points year-on-year, with 8 firms exceeding a 7% ROE; the overall average leverage ratio for the first half of 2026 was 3.61 times, a slight increase from 3.39 times at the end of 2025. It is believed that under the backdrop of active trading in the equity market, brokerage businesses and other fee-based services have significantly increased year-on-year, while the equity market has exhibited structural trends, with investments in science and technology performing better than the same period last year, combined with an 8 percentage point decline in expense ratios, leading to a significant increase in the ROE of the securities industry. Fee-based services experienced nearly universal growth, with significant flexibility in proprietary trading. 1) Brokerage commissions saw significant growth. In the first half of 2026, the total brokerage income of listed securities firms or their parent companies reached 99.9 billion RMB, an increase of 54% year-on-year; the growth rate was lower than the average daily trading volume of stock funds' 99% increase, attributed to the increasing proportion of low-fee trading such as quantitative and ETF transactions, as well as substantial declines in commission rates following fund fee reform. 2) In the first half of 2026, investment banking revenue rose 24% year-on-year, mainly benefiting from the surge in domestic and overseas IPOs. The 46 publicly listed securities firms that disclosed their investment banking revenues achieved a total investment banking income of 19.5 billion RMB, increasing by 24% year-on-year. 3) Asset management revenues grew rapidly, and the asset management scale stabilized and rebounded. In the first half of 2026, the 46 listed securities firms that disclosed asset management revenues collectively achieved 27.7 billion RMB in asset management income, a year-on-year increase of 29%. The 33 firms that disclosed comparable data saw a total asset management scale of 8.2 trillion RMB by the end of the first half of 2026, an 8% increase from the beginning of the year. 4) The equity market showed a structural trend, and the bond market performed better than the same period last year, with the net investment income from proprietary trading rising by 49% year-on-year. In the first half of 2026, the 50 listed securities firms collectively achieved a total investment net income (including fair value) of 175.4 billion RMB, up by 49% year-on-year. In the second quarter, they achieved an investment net income of 117 billion RMB, a year-on-year increase of 75%, and a quarter-on-quarter increase of 100%. 5) On a parent company basis, the equity scale grew significantly. By the end of the first half of 2026, the parent company basis of 46 listed securities firms had a total proprietary position of 5.8 trillion RMB, an increase of 7% year-on-year; of that, bond investments amounted to 5.3 trillion RMB, up 5% year-on-year, accounting for 90%; equity investments totaled 578.9 billion RMB, a 32% year-on-year increase, accounting for 10%. 6) On a consolidated basis, securities firms continued to increase their allocation to other equity instruments. By the end of the first half of 2026, the total scale of other equity instruments held by the 50 listed securities firms was 798.6 billion RMB, an increase of 10% from the beginning of the year and a tenfold increase from the end of 2021. Among large securities firms, Guotai Haitong, China Securities Co., Ltd., CMSC, GF SEC, and Huatai saw significant increases in allocations compared to the beginning of the year. Based on a high base, it is expected that the industry will achieve a net profit growth of 36% year-on-year in 2026. Based on a neutral assumption, it is estimated that the industry's net profit will grow by 36% year-on-year in 2026: brokerage revenue is expected to increase by 43% year-on-year, investment banking revenue by 28% year-on-year, capital intermediation income by 35%, asset management business by 10%, and proprietary trading by 40% year-on-year. Valuations are relatively low, with optimistic expectations for future valuation recovery. Currently, the valuations of China's securities firms are at a reasonably low level. As of September 1, 2026, the static valuation of the CITIC SECII index was 1.27x PB, at the 9th percentile since its listing, and at the 20th percentile over the past decade. Investments in science and technology and international businesses are expected to drive the industrys ROE center upward, providing significant future growth potential. Considering the active development policies in the industry and the trend toward increased concentration, it is believed that large securities firms still possess significant advantages. Key recommendations: Guotai Haitong, CMSC, Caitong, GF SEC, CITIC SEC, East Money Information, Beijing Compass Technology Development, and Xiangcai Co., Ltd. Risk warnings: significant fluctuations in the equity market, macroeconomic recovery falling short of expectations, increased regulatory scrutiny in capital markets, and intensified industry competition.