The brokerage sector, often seen as a market bellwether, experienced a collective surge on July 1st. According to data from Tonghuashun, the sector closed up 4.82% overall, significantly outperforming the Shanghai Composite Index, which rose 0.44%. Throughout the trading day, the sector attracted a net inflow of 8.945 billion yuan in major capital. All 50 constituent stocks within the sector posted gains, with Tianfeng Securities, Guosheng Securities, and Huaan Securities hitting the daily 10% limit-up. Notably, China Merchants Securities made a strong push towards the limit-up in the afternoon session, briefly reaching it before retreating at 1:47 PM; it closed with a gain of 8.72%, bringing its latest total market capitalization to approximately 199.5 billion yuan.
Catalysts for the Sector Rally
Liu Youhua, Research Director at Paipaiwang Wealth, commented on the sector's collective strength, attributing it to multiple driving factors. Firstly, on the policy front, the formal implementation of the "State Council Regulations on Outbound Investment" starting July 1, 2026, is expected to broaden securities firms' scope for cross-border asset allocation and international business. Secondly, fundamental support is strong. Trading activity in the A-share market has remained robust, with the average daily stock and fund trading volume for the first five months of 2026 reaching 3.1856 trillion yuan, a significant year-on-year increase of 93%. Over the same period, securities transaction stamp duty accumulated to 126.2 billion yuan, up 88.8% year-on-year. As stamp duty serves as a leading indicator for brokerage business, this provides solid fundamental backing for the sector's strength. Finally, there is a confluence of valuation and capital flows. Previously, the brokerage sector exhibited a mismatch of "high ROE (Return on Equity) and low PB (Price-to-Book ratio)," with valuations at historical lows. Coupled with rising trading congestion in the technology sector, capital is rebalancing from high to low valuations. Brokerages, benefiting from their low-position advantage and expectations of strong second-quarter earnings growth, are entering a window for valuation repair.
Industry Trends and Outlook
Discussing industry trends, Zhongtai Securities noted that the overall ROE for the securities industry rose to 6.8% in 2025, an increase of 1.6 percentage points year-on-year. The profit improvement trend continued into the first quarter of 2026 for listed brokerages, with the industry's average ROE reaching 2.12%, up 0.2 percentage points year-on-year. The average for the top ten leading brokerages reached 2.8%, indicating a clear trend of profit recovery. Valuations remain in an extremely low range compared to the past decade, showing a significant mismatch with earnings. This presents ample cost-effectiveness for medium to long-term allocation. The simultaneous resonance of three main themes—technology innovation, overseas expansion, and wealth management—is driving both the performance and valuations of brokerages upward.
Investment Opportunities in the Sector
Regarding investment opportunities, Jia Xiaolong, Director of the Heiqi Capital Research Institute, stated that the brokerage industry landscape is undergoing profound changes. Mergers and acquisitions are accelerating, with regulators clearly supporting the consolidation and strengthening of high-quality securities firms. Industry concentration is expected to rise from 58% to over 65%, gradually forming a pattern of "leading brokerages plus specialized small and medium-sized brokerages." The entry of medium to long-term funds into the market has also become a key variable—the rollout of personal pensions, increased equity allocation ratios for insurance funds, and the accelerated formation of a "long-term capital, long-term investment" ecosystem are reshaping the wealth management logic for brokerages, pushing them to transition from mere trading channels to genuine asset allocation platforms. Currently, institutional allocation to the brokerage sector remains relatively low, indicating significant room for "catch-up allocation." As market sentiment warms up, brokerages, as the market's "bellwether," will be the first to exhibit elasticity. The probability of the brokerage sector achieving excess returns in 2026 is relatively high, with core catalysts coming from the pace of policy implementation, the realization of mid-year earnings reports, and the concentrated completion of M&A cases. In summary, the brokerage sector is currently in a rare window characterized by "low valuation, high prosperity, and strong policy support," offering both offensive and defensive qualities. Its long-term allocation value is being re-recognized by the market. This is not short-term thematic speculation but a strategic opportunity for the industry's transformation from cyclical attributes to growth attributes against the backdrop of high-quality development in the capital markets.
Zhongtai Securities added that the current valuation of the non-bank financial sector remains at a historically low level, suggesting that brokerages are poised for a systematic revaluation.
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