The Chinese brokerage sector is poised for a robust summer rally. Driven by active second-quarter market trading, low valuations, and a cluster of supportive policies, international investment banks anticipate further upside potential for the sector's recovery.
On June 22, Chinese brokerage H-shares surged 6.1% in a single day, significantly outperforming the Hang Seng Index's 0.65% decline on the same day. Year-to-date, the sector has outperformed the broader market by approximately 7 percentage points. According to market intelligence, UBS Group AG (ASX: UBS) attributes the current rally to two key drivers: firstly, persistently high market activity in the second quarter, which is expected to sustain strong earnings growth for listed brokers; and secondly, a continuous accumulation of favorable regulatory policies, with signals for market stability from the Lujiazui Forum and a joint action plan on foreign investment utilization from multiple ministries further boosting sector sentiment.
Approaching Performance Catalyst
With the first-half earnings season approaching, JPMorgan expects it to serve as another critical catalyst for the sector. JPMorgan research indicates a high probability that companies including China International Capital Corporation (CICC), CITIC Securities, Guotai Junan Securities, and GF Securities will issue positive earnings alerts for the first half of 2026. Historical data shows that H-share brokers have averaged a 5% gain in the 30 days preceding such an alert and a further 3% gain in the 7 days following it, significantly outperforming their A-share counterparts.
Valuations Remain Attractive
Despite the recent strong rebound, current valuations remain relatively low. According to UBS Group AG, Chinese brokerage H-shares and A-shares are still down 0.4% and 6.8% year-to-date, respectively, while the CSI 300 Index has gained 9.3% over the same period. The average 2026 forward price-to-book (P/B) ratio for brokers covered by UBS Group AG is approximately 1.2x for A-shares and 0.8x for H-shares. JPMorgan data also shows that A-share broker P/B ratios have fallen to their lowest levels since the market rally in September 2024, while H-share valuations are comparable to levels seen just before the sector's significant rebound in the first half of 2025.
Second-Quarter Momentum Accelerates
Listed brokers reported a 39% year-on-year increase in recurring net profit for the first quarter. This momentum has accelerated into the second quarter across major business lines. According to UBS Group AG, the average daily stock trading volume on the A-share market has risen to 2.8 trillion yuan so far in Q2, representing a 120% year-on-year increase (compared to 69% in Q1) and a 9% sequential increase. Margin financing balances have climbed to 3.0 trillion yuan, up 62% year-on-year (36% in Q1) and 14% sequentially. A-share IPO fundraising has surged 65% year-on-year and 91% sequentially.
Retail sentiment has also remained robust. From April to May, 5.3 million new securities trading accounts were opened, a 51% year-on-year increase. New hybrid fund issuance reached 96 billion yuan, up 180% year-on-year. Concurrently, the CSI 300 Index has rebounded 13.7% so far in the second quarter, reversing its 3.9% decline in Q1, which is expected to boost brokers' proprietary investment portfolios. Furthermore, leading brokers with exposure to the STAR Market stand to gain additional benefits from their follow-on investments and private equity holdings, leveraging their integrated investment banking, research, and investment capabilities.
JPMorgan's data corroborates these trends: average daily A-share trading volume has increased approximately 120% year-on-year so far in Q2, while margin financing balances are up about 53% year-on-year, recently hovering near 2.88 trillion yuan, with the May monthly average trading volume reaching 3.2 trillion yuan.
Policy Support Intensifies
The Lujiazui Forum emphasized market stability and signaled multiple structural benefits. According to UBS Group AG's interpretation, regulatory efforts to attract long-term capital and broaden the range of financial instruments (including active ETFs) will help strengthen market structure, support trading volumes and asset allocation inflows, and guide the formation of a steady bull market. Brokers will benefit across wealth management, brokerage, and institutional business dimensions.
Regarding equity financing, regulators have signaled more inclusive listing standards for the STAR Market and ChiNext, focusing on artificial intelligence and hard-tech sectors. They have also expanded policy support for mergers and acquisitions, refinancing, and are allowing eligible Hong Kong-listed companies to list on the A-share market. These measures are expected to increase deal flow and boost investment banking revenue.
In terms of opening up, a joint action plan on stabilizing and optimizing foreign investment utilization extends derivative market access (including treasury bond futures) to foreign institutions and grants them fund investment advisory licenses. This move is expected to accelerate the industry's transition towards a buyer-advisory model. On cross-border business, regulators are advancing pilot programs for RMB foreign exchange futures, supporting Hong Kong's launch of 5-year RMB treasury bond futures, and facilitating capital flows through channels like Stock Connect, QDII, and the Cross-boundary Wealth Management Connect.
Policy deployment has continued year-to-date: in May, the first batch of departmental rules for the derivatives sector were issued, and in April, a new round of ChiNext reforms introduced a fourth set of listing standards, laying an institutional foundation for the industry's medium-to-long-term development.
Leading Firms Poised to Benefit
Overall, sector valuations remain in a historically low range, suggesting room for further recovery. JPMorgan notes that A-share brokers are currently trading at approximately 1.04x FY1 P/B, the lowest level since September 2024. H-share brokers are at about 0.74x FY1 P/B, similar to levels seen before the sector rally began in Q2 2025.
The average P/B for stocks covered by UBS Group AG is 1.2x (A-shares) and 0.8x (H-shares) based on 2026 estimates. Supported by improving profit prospects and structural growth drivers, these valuations are considered low. UBS Group AG expects potential for valuation re-rating, with easing investor selling pressure also likely to provide share price support. The firm believes leading brokers will benefit from stronger regulatory support, broader non-brokerage business exposure, greater pricing power, and an accelerating industry consolidation trend.
H-Shares May Outperform in Near Term
According to JPMorgan, listed companies must issue an earnings alert if their year-on-year profit change exceeds 50%. Based on current operational trends, JPMorgan expects CICC's first-half net profit to grow about 60% year-on-year (versus 75% in Q1), CITIC Securities about 50% (56% in Q1), and GF Securities about 50% (71% in Q1), all falling into the high-probability category for triggering an alert.
The situation for Guotai Junan Securities is more specific: its Q1 net profit fell 48% year-on-year, impacted by a one-time gain in the same period last year. However, based on current trends, Q2 profit growth is estimated at approximately 140% year-on-year, leading JPMorgan to believe the company might voluntarily issue an alert. The probability of alerts for China Merchants Securities, East Money Information, and Huatai Securities is assessed as relatively lower.
Historical patterns indicate that H-share brokers exhibit a significantly stronger price reaction to earnings alerts than A-shares. JPMorgan statistics show H-share brokers average a 5% gain in the 30 days before an alert and a further 3% in the 7 days after. A-share performance over the same periods has been relatively muted. Given their lower valuations and higher price sensitivity to earnings alerts, JPMorgan expects H-share brokers may stage a period of outperformance during the upcoming alert window.
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