Central China: Strong structural tech innovation market trends, securities firms' earnings elasticity accelerating release

Central China released a research report stating that in 2026H1, the securities industry's revenue increased by 31.38% year-on-year, and net profit increased by 23.50% year-on-year, with all business lines achieving comprehensive growth. The firm expects that the core fluctuation range of the average P/B of the securities sector in Q4 will remain between 1.10x and 1.30x. If it moves toward the lower limit of the valuation fluctuation range, it will still be a good opportunity to re-enter the securities sector, and investors should actively maintain continuous attention to policy developments, market conditions, and the securities sector. Central China's main views are as follows: In 2026H1, the securities industry once again achieved its best half-year operating performance in nearly a decade. In 2026H1, the securities industry's revenue increased by 31.38% year-on-year, and net profit increased by 23.50% year-on-year. The industry's leverage ratio continued to rise, ROE further recovered, and brokerage, margin financing and securities lending, and broad investment contributed core performance increments. The share of proprietary trading revenue remained stable, while the share of brokerage revenue rebounded to the second-highest level in nearly a decade. Operating performance among listed securities firms remained clearly differentiated, and the concentration of industry profitability reached a record high. In 2026H1, all business lines of the securities industry achieved comprehensive growth. 1. In the first half of the year, the equity market showed strong structural tech innovation market trends, while the fixed income market returned to range-bound gains. The scale of financial investments by listed securities firms maintained growth, with FVTPL assets growing relatively quickly. The performance contribution of bond OCI declined, while the performance contribution of equity OCI remained stable. The performance contribution of alternative investment subsidiaries increased significantly, and investment income (including fair value changes) continued to grow rapidly. 2. The tech innovation mainline was clear, market risk appetite continued to improve, and the increase in average daily stock trading volume across the entire market further expanded. The growth in agency trading, seat leasing, and consignment sales was relatively obvious. The market trading structure tilted toward institutionalization, and brokerage business sentiment continued to rise. 3. The scale of equity financing (excluding refinancing by listed banks) continued to recover, the scale of debt financing continued to expand, the scale of Hong Kong IPO increased significantly, and investment banking business recovered moderately for the second consecutive year. The concentrated pulling effect of leading securities firms on investment banking business continued to strengthen. 4. The rebound in asset management scale expanded somewhat, and the scale of public funds maintained a growth trend. The performance contribution of public fund companies in which listed securities firms hold or control stakes declined slightly on a passive basis. Excluding fund management business, the net revenue of listed securities firms' asset management business stabilized and rebounded. 5. Both the margin financing and securities lending balance across the entire market and the average daily balance of margin financing and securities lending clearly refreshed historical highs. Margin financing and securities lending interest income of listed securities firms continued to recover, while stock pledge interest income continued its downward trend. With the positive interest spread effect strengthening, the growth in net interest income expanded significantly. Investment recommendations Policy front: On July 30, 2026, the Central Politburo meeting stated that it would "deepen the comprehensive reform of capital market investment and financing, and enhance the resilience and confidence of the capital market." Since the third quarter, the capital market has experienced obvious fluctuations due to external transmission factors. The tone set at this Politburo meeting released a clear signal of policy support, aimed at stabilizing expectations among all market participants and laying a solid policy foundation for the steady progress of the capital market and the sound operation of its investment and financing functions. Fundamentals: Given the relatively solid performance base in the first half, even if the equity market fluctuates in the third quarter, it should be a high-probability event that the industry's full-year overall operating performance will rise steadily and reach a new high since 2016. Valuation front: Since the third quarter, the securities index rebounded to a wave high at the beginning of the quarter and then gradually fluctuated downward. Recently, it has once again approached the previous low for the year seen in early June. The average P/B of the securities sector has fallen again from 1.36x to around 1.20x, and overall operations have continued to remain below the sector's average P/B of 1.52x since 2016. In the fourth quarter, the year-on-year and quarter-on-quarter pressure on listed securities firms' operating performance will ease significantly, and the room for the securities sector to continue weakening is relatively limited. It is expected that the core fluctuation range of the average P/B of the securities sector in Q4 will remain between 1.10x and 1.30x. If it moves toward the lower limit of the valuation fluctuation range, it will still be a good opportunity to re-enter the securities sector, and investors should actively maintain continuous attention to policy developments, market conditions, and the securities sector. It is recommended to focus on leading listed securities firms, small and medium-sized listed securities firms that are gradually developing differentiated competitive advantages, listed securities firms with strong tech innovation attributes, and listed securities firms whose individual stock valuations are significantly below the sector's average valuation. Risk warnings: 1. Weakening conditions in the equity and fixed income markets leading to a decline in the fundamentals of the securities industry; 2. Short-term stock price fluctuation risk for listed securities firms; 3. The policy effects of the new round of deepening capital market reform falling short of expectations; 4. Unexpected events causing a significant deviation between the 2026 securities industry profit expectations and actual operating performance.