Greater consolidation among Chinese securities firms, with the latest being the announced merger between Guotai Junan Securities Co (HKG:2611, SHA:601211) and Haitong Securities (HKG:6837, SHA:600837), points to the industry's efforts to address global competitiveness and market fragmentation, Fitch Ratings said in a Monday release.
A rise in mergers and acquisitions over the previous year follows calls from regulators that push for globally competitive flagship investment banks, Fitch said.
The rating agency views the country's securities firms as important in supporting local governments' pivot to equity investments in government-owned entities for income generation as they see decreased revenue from land sales.
Local governments are vital for industry consolidation, as observed in their partnership with supported securities firms that foster strategically important industries, Fitch said.
The combination of Guotai Junan Securities and Haitong Securities would create the biggest securities company in China, with combined assets of 1.66 trillion yuan as of the end of 2023.
Fitch expects the merger to produce more defined tiers in the industry sector, with the top 10 securities firms by asset size in 2023 comprising more than 60% of the sector's profit and the top five firms owning 40%.
More consolidation will give leading securities firms the potential to further improve growth and earnings within a more tiered regulatory environment, Fitch said.
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