Shen Wan Hongyuan: Securities Industry Integration Shapes Leading Wealth, Accelerates Iteration of International Business

The Zhitong Finance App learned that Shen Wan Hongyuan released a research report saying that with the in-depth evolution of capital market conditions since “924,” investment in the brokerage sector has moved from transactional opportunities to the allocation window for high-quality targets. Recently, the bottom of the policy has gradually become apparent. Due to forward-looking pricing characteristics, the valuation level of the brokerage sector bottomed out before the market. Leading institutions are driving the evolution of the industry. The market may need to re-examine pricing: 1) market pattern optimization driven by key mergers and acquisitions; 2) leading transformation in wealth management, optimization of revenue structure, and continuous accumulation of customer base; 3) international business resource supplements are in place one after another. Under the premise of good risk analysis, incremental release of performance can be expected, and space for revenue expansion can be expected. Furthermore, considering that leading institutions have more stable and better capital business allocation capabilities and stronger resilience in fee businesses, they may show stronger advantages in a headwind business environment.

Shen Wan Hongyuan's main views are as follows:

Market review: capital factors and business cooling down one after another. The brokerage sector underperformed the market during the year, and sector investment moved from transactional opportunities to the allocation window for high-quality targets

Review: Since “924,” the overall trend in the brokerage sector has shown four major stages. Phase 1 (early September '24 to the end of August '25): The “924" domestic capital market bottomed out, and brokers' excess profits clearly outperformed; Phase 2 (early September '25 to the end of May '26): Under the influence of capital factors, etc., the excess earnings of the sector declined significantly until they leveled off and turned negative; Phase 3 (June '26): against the backdrop of significant divergence in valuation and profit expectations, under the influence of factors such as capital growth and high increase in profit expectations (strengthening of science and innovation equity, wealth building), and rebalancing capital allocation, etc. The sector once again generated excess profits in stages; Phase 4 (early July '26 -End of October '26): High-frequency data weakened month-on-month, market pricing gradually digested, sector decline was relatively small, and valuations returned to a low level.

Recovery: Financial factors and operations cooled down one after another, and the sector's annual performance was weak and underperformed by the market. Ranking the rise and fall of the Shenwan Secondary Index from the beginning of '26 to the end of October, Securities II (Shenwan) ranked 69/124, falling 21.7% in the range; compared with the performance of other major stock indexes, the decline of the Securities II (Shenwan) Index from the beginning of '26 to the end of October was higher than that of the Shanghai Composite Index, Shanghai and Shenzhen 300, and Science Innovation 50.

Management: The market environment changes quarterly, and the resilience of brokerage operations is facing a major test. As the net assets of brokerage firms continue to expand, the scale of financial investment assets has steadily expanded (CITIC and Cathay Pacific Haitong have already exceeded the trillion scale), and the impact of investment income on brokers' profit statements has increased significantly, so it is essential to balance short-term profit stability. In an environment where the equity market fluctuates in a single quarter, brokers' financial investment income in a single quarter declined sequentially. The overall investment income performance of leading tier brokerage firms was better. The overall return on investment of the top ten tier brokerage firms for the first three quarters of 26 was +12%, and the overall return on investment of other listed brokers was -9%; the overall return on investment for the first three quarters of 26 was 2.6%, and the overall return on investment of other listed brokers for the first three quarters of 26 was 2.4%. Leading tier brokerage firms showed operational resilience in higher-cost businesses (brokering+investment banking+asset management), helping smooth performance fluctuations. In the first three quarters of '26, net revenue from fees and commissions for the top ten tier brokerage firms was +32% year-on-year, while other listed brokers' overall net revenue was +20%. Net income from processing fees and commissions for the top ten tier of 26Q3 was -2% month-on-month, while other listed brokers' overall net revenue was -9% month-on-month.

Shareholders: Marginal adjustment of shareholding for important shareholders of listed brokerage firms. Some long-term capital shareholders have begun to increase their allocations. On October 9, Xinhua Insurance announced that on September 29, the company increased its holdings of Cathay Pacific Haitong H shares by 9.9596 million through centralized bidding transactions in the secondary market, accounting for about 0.28% of the H shares already issued by Cathay Pacific Haitong Securities. After this equity change, Xinhua Insurance and its co-actors held a total of 710 million Cathay Pacific Haitong H shares, which rose from 19.96% to 20.24%.

Policy: Launch a policy package around the capital side to stabilize market expectations.

The three major clues may need to be re-examined: peer integration shapes the head, and wealth and international business accelerate iteration

Key mergers and acquisitions continue to be implemented, and the industry pattern is gradually becoming clear. CICC and Orient Securities have advanced to the next level by promoting key mergers and acquisitions. Between 2019 and the third quarter of 2026, the overall net revenue of listed brokers' core fee business (brokering+investment banking+asset management) was in a channel of increasing concentration. Key industry integration acts as a catalyst for increasing industry concentration. Investment banks are more concentrated in their IPO business, and their leading advantages are clear. Financial resources are pooled to leading institutions, and earnings performance is expected to be more stable and better.

Commission rate pressure has exceeded expectations, and wealth management transformation is being promoted at an accelerated pace. The monthly peak of trading may have passed, and the average daily stock base turnover has cooled month-on-month; the “volume increase and price reduction” characteristics continue, and small and medium-sized brokerage firms may face greater operating pressure. Under the new business situation, it is expected that leading institutions leading the pace of wealth management transformation will better smooth out the fluctuations in wealth retail line operations and fully seize incremental business opportunities. Leading institutions contribute to steady profit growth momentum through the “big asset management” business, which consists of brokerage asset management+participant/holding public offering.

The trend of RMB internationalization is clear, and international business development has ushered in a critical window. In the context of trends such as RMB internationalization, the global layout of Chinese enterprises, and global asset allocation of cross-border capital, “Invest in China” and “Invest in China” have both opened up important incremental revenue opportunities for brokers' international business operations. With leading regional layout, better talent teams, strong financial strength, superior brand effects, extensive customer networks, and perfect compliance risk control, it is expected that leading institutions will better grasp the incremental opportunities for international business. The capital-heavy business is an important source of revenue growth for brokers' international business, and doing a good job of predicting and predicting cross-market risks is the key to steady expansion.

Risk warning: 1) The domestic equity market showed a volatile trend, with the securities industry operating under pressure and performance growth falling; 2) market trading declined beyond expectations; 3) the increase in residents' equity asset allocation fell short of expectations; 4) the overseas business development process of brokerage firms fell short of expectations; 5) the progress of mergers, acquisitions and restructuring among brokerage firms fell short of expectations.