Shenwan Hongyuan Group Co., Ltd. released a research report stating that the brokerage sector is experiencing a divergence between trading volume and price levels, highlighting its attractive valuation for investment. As 2026 marks the beginning of the 15th Five-Year Plan period, brokerages, serving as core intermediaries in capital markets, are poised for a potential Davis double boost driven by policy support, capital inflows, and active market trading. Key catalysts in the first half of 2026 include first-quarter earnings disclosures and the implementation of policy reforms. The firm recommends focusing on two investment themes: leading institutions that are currently undervalued, possess strong comprehensive capabilities, and stand to benefit from industry consolidation; and specialized brokerages with attractive valuations and clear logic for return on equity improvement. Shenwan Hongyuan's main views are as follows:
Performance Overview: In 2025, the brokerage sector (26 listed brokerages) achieved a 47% year-on-year increase in net profit; average return on equity rose to 7.6%, with proprietary trading and brokerage services being the primary contributors to growth. The 26 listed brokerages collectively reported a net profit attributable to shareholders of 1.773 trillion yuan, up 47% year-on-year (all firms posted positive growth, aligning with the firm's earlier forecast of a 47% increase for the securities industry in 2025). The overall return on equity for the 26 brokerages improved to 7.6%, with firms including CITIC Securities, GF Securities, China Securities, and East Money all exceeding 10%. Investment business was the key driver of the strong year-on-year profit growth. A breakdown of main operating revenue (excluding other fee income and long-term equity investments) is as follows:
1) Light Capital Businesses: Brokerage revenue increased 44% year-on-year, accounting for 28% of the total; investment banking revenue rose 38% year-on-year, representing 7%; asset management revenue grew 8% year-on-year, making up 9%. Within light capital businesses, brokerage services saw high growth, while investment banking and asset management returned to positive growth from a low base.
2) Capital-Based Businesses: Proprietary business revenue (excluding long-term equity investments) increased 24% year-on-year, accounting for 41%; net interest income rose 50% year-on-year, contributing 9%. Operating leverage also increased: the average operating leverage (excluding client funds) for the 26 brokerages reached 4.5x, up 0.3x from the end of 2024. Firms such as CITIC Securities and Haitong Securities saw operating leverage exceed 5x; however, there remains significant room before reaching the regulatory upper limit of 6x.
Business Overview: The transformation toward a buyer's advisory model in the wealth management business continues to deepen; the rebalancing logic for proprietary investments in equities and bonds is being realized; international operations have become a core contributor to earnings growth.
Wealth Management: Leading brokerages reported simultaneous growth in client numbers, total client assets, and average assets per client, reflecting an optimized client structure resulting from the deepening wealth management transformation. The shift of household deposits into investments is increasing the contribution of affiliated public fund companies to brokerage earnings.
Investment Banking: A recovery in domestic initial public offerings and active Hong Kong listings in 2025 drove strong year-on-year growth in investment banking revenue from a low base, with further concentration in IPO underwriting. The trend of integrated investment banking services is gaining traction, with "co-investment + equity investment" strategies beginning to show returns. In 2025, the net profit of CITIC Securities Investment and Haitong Innovation both exceeded 10 billion yuan.
Proprietary Investment Rebalancing: Financial investment assets expanded at a double-digit rate, with high-dividend stocks remaining a primary focus for increased allocations. Leading brokerages also increased allocations to equity investments measured at fair value through profit or loss and overseas bonds. Derivatives business is gradually taking over as a driver of balance sheet expansion, following fixed-income assets and equity assets measured at fair value through other comprehensive income.
International Business: Chinese brokerages' overseas operations exhibit high leverage and high return on equity, contributing significantly to overall performance. For example, CITIC Securities International reported leverage of 16.6x and a return on equity exceeding 25%, contributing 21% to the group's earnings.
Risk Warning: Declines in stock and fund trading volumes; slower-than-expected shift of household deposits into capital markets; delays in mergers and acquisitions among brokerages; potential goodwill or asset impairment risks for some brokerages due to M&A activities; adverse bond market conditions impacting proprietary bond investments.