Industrial Securities Co.,Ltd. has released a research report indicating that the first half of 2026 saw a dense rollout of capital market reform policies, significantly lifting market risk appetite. The influx of long-term funds and optimized trading mechanisms have driven a surge in market activity, which is now fueling a fundamental reassessment of the broker valuation framework.

Leading brokers are leveraging their comprehensive business lines, international reach, and high-leverage balance sheet capabilities to decouple from market beta and generate alpha profits. In contrast, smaller and mid-tier brokers continue to rely heavily on market fluctuations, effectively functioning as beta assets. The primary investment thesis moving forward centers on the repricing of top-tier brokers that exhibit both high return on equity (ROE) and low price-to-book (PB) ratios within a PB-ROE analytical framework.

Where to begin

The equity markets have been exceptionally active, placing the industry in a period of cyclical prosperity. In the first half of 2026, 42 listed brokers collectively reported a 46.0% year-on-year increase in total operating revenue and a 49.1% rise in net profit attributable to shareholders, reaching RMB 363.783 billion and RMB 155.154 billion, respectively. Revenue streams from brokerage, investment banking, asset management, proprietary trading, interest, and other operations grew by 54.2%, 24.9%, 24.0%, 48.9%, 52.9%, and 32.6% year-on-year, totaling RMB 97.8 billion, RMB 19.4 billion, RMB 27.5 billion, RMB 172.6 billion, RMB 30.1 billion, and RMB 16.5 billion. Proprietary trading continues to stand as the largest revenue contributor.

The 42 listed brokers achieved a notable 8.02 percentage point reduction in their overall administrative expense ratio, which fell to 42.8%. The credit impairment loss rate rose by 0.94 percentage points to 1.2%, underscoring significant progress in cost reduction and efficiency enhancement. Operational leverage for these brokers increased to 4.28 times during the period, with credit and investment leverage climbing 9.8% and 5.0% from the start of the year to 0.96 and 2.56 times, respectively.

Structural market trends, coupled with consolidation among top-tier brokers, have accelerated the Matthew effect within the industry. The top five brokers' share of total net profit attributable to shareholders expanded by 2.70 percentage points from the beginning of the year. Concurrently, the industry's workforce continues to shrink as wealth management transformations drive a significant exodus of securities brokers, while the number of investment advisors is bucking the trend with growth.

Market sentiment remains elevated, and fee-based business is experiencing robust growth

In the realm of brokerage operations, the 42 listed brokers generated net brokerage income of RMB 97.843 billion in the first half of 2026, a 54.2% increase year-on-year. Revenue from trading seats and product distribution grew at remarkable rates of 74.5% and 85.8%, respectively. The substantial expansion of the private market is triggering a structural shift in the brokers' wealth management segment.

Regarding investment banking, the number of IPO and refinancing deals rose by 39.2% and 48.4%, respectively. Notably, capital raised from Hong Kong IPOs surged by 99.7% year-on-year, helping the 42 listed brokers achieve a 24.9% increase in investment banking revenue to RMB 19.405 billion. The project pipeline for IPOs and refinancing is highly concentrated, with the top 10 brokers holding 63.7% and 64.3% of the market share, clearly demonstrating the advantages of scale.

Asset management has benefited from heightened market activity, with the public offering (公募) scale expanding by 5.5% and private offering (私募) scale by 6.8% since the start of the year. Total large asset management revenue for the 42 listed brokers grew by 23.8% to RMB 30.094 billion. Leading public fund subsidiaries have reported substantial year-on-year profit growth. The ongoing science and technology bull market is beginning to yield returns from direct investment and alternative investment subsidiaries.

The profits from the tech bull market are being realized

In investment operations, 21 sampled listed brokers saw their total financial assets increase by 11.9% from the start of the year to RMB 7 trillion. Equity assets grew by 25.0%, marking them as the primary target for asset allocation, likely driven by growth in over-the-counter (OTC) derivatives. Investment income for these sampled brokers jumped 52.6% year-on-year to RMB 150.868 billion, establishing it as the core profit engine. In the science and technology bull market environment, brokers' alternative investment subsidiaries are entering a harvest period as their co-investment projects mature. Notably, the alternative investment subsidiaries of Industrial Securities Co.,Ltd.'s peers, 国泰海通 and 招商证券, posted net profits of RMB 6.507 billion and RMB 5.220 billion, contributing 31.1% and 49.1% of their respective parent companies' profits.

Allocation to Other Comprehensive Income (OCI) equity assets continues to expand. Brokers like 光大证券 and 东吴证券 increased their OCI equity holdings, leading to a 43.1% and 42.3% rise in their fair value from the start of the year, respectively. In the credit business, margin financing remains highly prosperous, with balances reaching RMB 3.02 trillion in the first half of 2026, up 18.9% from the beginning of the year. Stock pledge financing scales continue to contract.

Global expansion is becoming the next profit growth driver

With the recovery in trading activity and issuance in the Hong Kong market during the first half of the year, the overseas subsidiaries of leading Chinese brokers have achieved substantial profit growth. For instance, the international arms of 中信证券 and 华泰证券 have generated returns on equity (ROE) far exceeding their parent companies' consolidated figures. Their profit contribution increased by 4.2 and 9.3 percentage points to 23.9% and 23.3%, respectively. Specifically, 中信证券's international subsidiary achieved an impressive 39% ROE. In recent years, top brokers have been aggressively increasing capital in their overseas operations, with cumulative capital injections exceeding RMB 50 billion, significantly accelerating their international expansion.

Looking at the medium to long term, international business is poised to become the second growth curve for brokerages. Risks to consider include significant volatility in the equity market, heightened regulatory oversight, and a substantial decline in commission rates.