The significant rebound in the brokerage sector is being driven by a confluence of three factors: policy tailwinds, improving fundamentals, and low valuations.
While market chatter centers on the crowding into AI (Artificial Intelligence) and diverging sector performance, a subtle shift in A-share market style is emerging, with the brokerage sector staging a remarkable rally.
On June 22nd, A-shares posted a strong advance. The Shanghai Composite Index opened lower and fluctuated, but began a sustained upward climb approaching the midday session. By the close, the Shanghai Composite Index had gained 1.78% to finish at 4163.10 points. The Shenzhen Component Index rose 2.13% to 16372.50 points, while the ChiNext Index surged 2.52%, setting a new historical high. The STAR 50 Index climbed 1.96%. The combined turnover for the two markets reached 3.74 trillion yuan, with over half of all listed stocks closing higher.
Sector-wise, non-bank financials led the gains, with non-ferrous metals, basic chemicals, and power equipment also performing strongly. Sectors like beauty & personal care, conglomerates, automobiles, and machinery & equipment lagged behind. The Wind Securities Index soared 7.52% for the day, though it remains down 6.77% year-to-date.
Regarding the robust A-share performance, industry insiders noted that internally, this rally is propelled by a combination of policy catalysts, fundamental improvements, and sector valuation repair. Externally, the initial agreement reached in the US-Iran conflict has eased international geopolitical tensions.
A sharp rise in the brokerage sector is often seen as a leading indicator of a shift in market style. Does this surge signal a move away from the AI theme? Institutional analysts believe this round of brokerage gains does not signify the end of the AI industry as a primary market driver; the long-term growth logic of the AI technological revolution remains intact. The market dynamic is essentially a rebalancing of capital following extreme crowding. The market is no longer singularly chasing the AI theme, which is seeing internal consolidation, while undervalued sectors like finance, manufacturing, and cyclical stocks are experiencing valuation repair, leading to a more diversified investment landscape.
Brokerage Sector Leads A-Share Gains
On June 22nd, brokerage stocks, often regarded as a "bull market bellwether," were awash in green. By the close, non-bank financials (Shenwan primary industry classification) led the entire market with a powerful 6.84% gain. Multiple brokerages, including CITIC Securities and GF Securities, hit their daily limit-up. Fintech leader East Money Information Co., Ltd. skyrocketed 12.74%. The insurance sector also performed strongly, rising 5.80% for the day, with New China Life Insurance reaching its limit-up.
Wang Zheng, General Manager of Shangyi Fund, believes there are three main reasons for the brokerage surge. First, sustained high market turnover is expected to improve various brokerage businesses. Second, following the Lujiazui Forum, positive policy signals regarding capital market reform, the entry of medium- to long-term funds, and system optimizations for the STAR and ChiNext boards have boosted expectations for valuation repair in the non-bank financial sector. Third, the brokerage sector had previously lagged, and its valuations are not high, making it a natural target for funds seeking a rebound in market sentiment once risk appetite improves.
In other words, the substantial recovery in the brokerage sector is fundamentally driven by the combined resonance of three logics: policy tailwinds, improving fundamentals, and low valuations.
The recent Lujiazui Forum saw a dense release of favorable policies. Regulators expanded the application scope for the fifth set of listing criteria on the STAR Market and explicitly supported the Shanghai and Shenzhen exchanges in launching actively managed ETFs. These two policies simultaneously broaden the incremental business space for brokerages in investment banking, wealth management, and ETF market-making. From a fundamentals perspective, the ongoing shift of household savings into the equity market is driving incremental growth in wealth management business, cross-border international business is steadily expanding, and a large number of hard-tech companies listing on the STAR Market is leading to concentrated realization of equity investment gains from brokerages' co-investments. On the valuation front, the overall PB (price-to-book ratio) of the brokerage sector is only about 1.25x, having long been at historically low levels, providing ample margin of safety.
A securities analyst noted that the two major non-bank sectors, brokerages and insurance, have long been undervalued by the market. "With low deposit rates, some funds are starting to allocate to insurance. A-share average daily turnover remains high, boosting brokerage commission income, while proprietary trading, asset management, and investment banking businesses are also improving. Both brokerages and insurance are in a favorable state, but have been overlooked by capital."
Regarding the June 22nd A-share rally, some viewpoints suggest that externally, uncertainty in the Middle East conflict has significantly eased. According to reports, Iran and the United States held their first round of talks in Switzerland, reaching a five-point agreement. Domestically, monetary policy remains accommodative, with policies supporting stable growth and AI+ consumption-related industries continuing to be implemented, fueling market expectations for improvements in the real economy and corporate earnings.
Is a Market Style Shift Underway?
With the strong surge in the brokerage sector, does it signal an imminent shift in market style?
"I don't think it's accurate to say the investment logic has completely changed. More precisely, alongside the original tech growth theme, a logic of catch-up rallies in finance and undervalued sectors has begun to emerge. Currently, it seems more like 'the tech theme remains unchanged, but the market breadth has widened somewhat'," Wang Zheng stated.
AI has been the core, consistent theme throughout this market cycle and remains the investment clue with the highest current momentum. Institutions widely believe the tech rally is not mere speculation but has its rationale, supported by a combination of policy, earnings, and technology. However, if the market focuses solely on AI, it is clearly not rational or healthy.
"History in global markets shows that when the majority of funds concentrate on a single narrative or crowd into one industrial direction, a large number of overlooked investment opportunities often exist. Moreover, some cases indicate that opportunities of different styles can coexist; one doesn't need to wait for a theme's rally to completely end before another can perform," said Chen Guo, Chief Strategist at East Money Securities.
Now, as funds pile into hot AI tracks, investment opportunities in some other sectors may be being neglected by the market.
Institutional research data indicates that in segments like innovative drugs and high-end equipment manufacturing, corporate fundamentals are solid, with excellent earnings delivery capabilities, clear industry inflection points, and steady order release rhythms. Simultaneously, a large number of undervalued, high-dividend stocks, as well as niche tech segments not yet discovered by capital, have already fully realized their fundamental value.
"We believe the recent signs of style shift are more akin to the brief shift from growth to value in January-February 2021. Subsequently, it may be accompanied by consolidation within the main theme sectors while slowly seeking new opportunities in other directions. The major cycle of growth dominance driven by the AI industrial revolution has not changed," Chen Guo stated in a research report.
Chen Guo believes that from a crowding perspective, the current turnover share and relative closing price compared to the entire A-share market for non-bank financials and real estate are at historically low levels. For non-bank financials, with expectations for rising market activity and liquidity repair, the valuation repair for sub-sectors like brokerages and insurance deserves attention. Beyond that, machinery & equipment and non-ferrous metals also have a logic for recovery. Machinery & equipment benefits from replacement cycle and manufacturing recovery expectations, with crowding not yet overheated; non-ferrous metals are expected to be supported by normalization trades and domestic efforts to stabilize growth.
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