Summary of Key Points
In the first half of the year, the A-share market experienced a volatile upward trend. The revenue and net profit of 42 A-share securities firms increased by more than 40%. The proprietory trading business (where securities firms use their own funds to invest and earn profits) was the key driver of this performance surge, contributing over 40% of the total earnings. Securities firms favored large financial companies (banks, securities companies, futures firms, etc.) in their stock holdings and increased their positions in small and medium-sized stocks during portfolio adjustments, while reducing their holdings in some industry leaders and "Zhongzi-Head" stocks (companies with the prefix "Zhong" in their names).
Detailed Analysis
1. A 40% Increase in Earnings: Proprietory Trading Business as the Main Driver
Securities firms reaped substantial profits in the first half of the year—42 firms generated a total revenue of 363.7 billion yuan and a net profit of 155.1 billion yuan, both showing growth of over 40% compared to the same period last year. The main reason for this was the proprietory trading business: 37 firms with available data reported a combined proprietary trading income of 166 billion yuan, an increase of over 50%, accounting for more than 40% of their total earnings, making it the decisive factor in their performance.
Leading securities firms stood out in this area. For example, CITIC Securities generated 26.9 billion yuan from proprietary trading (more than half of its total revenue), while Guotai Haitong reported 23.8 billion yuan (over 50% of its total revenue). Additionally, four firms, including GF Securities and China Merchants Securities, had proprietary trading incomes exceeding 10 billion yuan each. Although the proprietary trading volumes of smaller firms were smaller (ranging from 1 to 3 billion yuan), their growth was also significant, with China Merchants Securities experiencing a 200% year-on-year increase, and Guotai Haitong and GF Securities both seeing increases of over 100%.
2. Stock Holding Preferences: Large Financial Companies Remain Favorite
When purchasing stocks, securities firms prefer large financial companies. As of the end of the first half of the year, financial firms such as CITIC Construction Investment, Jiangsu Bank, and Yongan Futures held significant positions in the market. For instance, CITIC Securities held a market value of over 10 billion yuan in CITIC Construction Investment, and Caitong Securities held 439 million shares of Yongan Futures (the largest holding).
In addition to large financial companies, securities firms also invested in sectors such as petroleum and petrochemicals (e.g., Sinopec), biomedicine (e.g., Shanghai Laishi), and public utilities (e.g., Huaneng Mengdian). Some stocks were held by multiple firms simultaneously; for example, Huaneng Mengdian's top ten shareholders included three securities firms: Dongfang Securities, Dongxing Securities, and Guotai Haitong.
3. Portfolio Adjustment Trends: Increasing Holdings in Small and Medium-Sized Stocks, Reducing Holdings in Leading Stocks
Securities firms made noticeable adjustments to their portfolios in the second quarter:
- Increasing Holdings in Small and Medium-Sized Stocks: Dongwu Securities increased its holdings in Chengdu Bank by 67.47 million shares, rising it from the eighth largest shareholder to the sixth; Zhongchuang Zhiling and Zhongyuan Haitie also saw increases of over 8 million shares each.
- Reducing Holdings in Leading/“Zhongzi-Head” Stocks: Guosen Securities reduced its holdings in Sinopec by 65 million shares; CITIC Construction Investment reduced its holdings in Muyuan Foods (a leading pork company) by 17 million shares; Dongfang Securities reduced its holdings in Yingfang Micro (a chip company) by 8 million shares. Other firms, such as Zhongjie Resources and Tianbang Food, also saw significant reductions in their holdings.
In summary, securities firms were more inclined to buy stocks of smaller companies and sell some of the larger, leading firms in the second quarter.
4. Market Conditions as a Key Factor: Good Market Performance Boosted Securities Firms
The strong performance of securities firms was closely linked to the positive A-share market trends in the first half of the year. The Shanghai Composite Index rose by 3%, the Shenzhen Component Index by 19%, and the ChiNext Index by 35%, leading to increased market activity. The nature of securities firms' business is highly dependent on market conditions—when the market is performing well, both their proprietary trading (investing on their own) and brokerage (charging commissions for client transactions) businesses thrive.
Analysts at CITIC Construction Investment noted that the profit growth in the first half was mainly due to market conditions, with proprietary trading and brokerage services being the two main drivers. Nearly 80% of securities firms' proprietary trading incomes increased compared to last year, highlighting the impact of market trends on their performance.
Conclusion
Securities firms' profits in the first half of the year primarily came from their proprietary trading activities, with a focus on financial companies. They shifted their portfolios towards small and medium-sized stocks during adjustments. All these trends were closely related to the upward trend of the A-share market. When the market is performing well, securities firms benefit significantly. Individual investors can also gain insights into market trends by observing these portfolio adjustments, such as increased attention to small and medium-sized stocks and reduced holdings in some leading firms. However, investment decisions should still be based on one's own circumstances and not simply follow the moves of securities firms.