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After 50 trading days of market volatility, the "bull market flag bearer" once again sounded the rallying call.

On July 31, the brokerage concept ushered in a big explosion, with many stocks such as Huaxin Securities (600621.SH), Tianfeng Securities (601162.SH), and Jinlong Securities (000712.SZ) hitting their daily limit.

On the news front, the Political Bureau of the CPC Central Committee held a meeting yesterday and proposed that we must coordinate risk prevention, strengthen supervision, promote development, boost investor confidence, and enhance the inherent stability of the capital market.

Boosting investor confidence, securities "take the lead"

On July 30, the Political Bureau of the CPC Central Committee held a meeting to analyze and study the current economic situation and deploy economic work in the second half of the year. The meeting put forward clear requirements on macroeconomic policies, boosting consumption, real estate, and capital markets, which attracted much attention from investors.

The meeting also proposed that we should coordinate risk prevention, strengthen supervision, promote development, boost investor confidence, and enhance the inherent stability of the capital market. It can be said that boosting investor confidence has been raised to a new level.

Analysts said that in August, the A-share mid-year report market is about to kick off. Listed companies with expected growth in performance and improved operating conditions are expected to receive attention from investors. In the future, as measures to stabilize growth continue to be stepped up, investor confidence will also be further restored. Next, the variables that affect the market in the second half of the year are experiencing positive changes, and the market center is expected to gradually move upward.

It is worth noting that the Shanghai Composite Index has been fluctuating and falling for 50 trading days since May 21, and the adjustment is relatively sufficient. On the last day of July, the "bull market flag bearer" securities sector stepped forward and turned the tide, becoming one of the main forces driving the market upward. On the morning of July 31, the securities sector rose by more than 6%.

Rumors of brokerage mergers resurface

At the same time, the market once again heard the news of "broker merger" this morning, and the protagonists this time were CICC and China Galaxy Securities. The stimulus of the news also played a certain role in promoting the market performance. At the close of July 31, CICC rose 6.48% and China Galaxy Securities rose 8.47%.

According to several industry insiders, "CICC (601995.SH) and China Galaxy Securities (601881.SH) are about to merge. It is rumored that Huijin has already approved it. Employees of these two brokerages are aware of it and are just waiting for the official announcement." However, the two institutions later refuted the rumor, and both sides said that there was no such news and that the official information should be taken as the standard.

CICC and China Galaxy Securities belong to the same Huijin system, and last year there were rumors that the two parties were going to merge.

Public data shows that CICC was established in 1995 and is headquartered in Beijing. It has more than 200 business outlets across the country and was listed on the Shanghai Stock Exchange in 2020. China Galaxy Securities was established in 2007 and is also headquartered in Beijing. It was listed on the Shanghai Stock Exchange in 2017.

Equity information shows that both parties belong to the Huijin system. CICC's 2023 annual report shows that Central Huijin is the company's largest shareholder, holding 40.11%. China Galaxy's 2023 annual report shows that the company's largest shareholder is China Galaxy Financial Holdings Co., Ltd., holding 47.43%. It is understood that China Galaxy Financial Holdings Co., Ltd. was jointly initiated by the Ministry of Finance and Central Huijin, and Central Huijin's investment ratio reached 69.07%.

In October 2023, the personnel changes of CICC and China Galaxy Securities attracted the attention of the market. The two securities companies officially announced the change of leadership on the same day. Chen Liang, the former chairman of China Galaxy Securities, was parachuted into the position of chairman of CICC; and Wang Sheng, the former president of China Galaxy Securities, was promoted to chairman. According to his resume, Wang Sheng joined China Galaxy Securities in July 2022 and had previously held an important position in CICC.

In addition, CICC and China Galaxy Securities also have strong complementarity in business. CICC's advantage lies in investment banking, while China Galaxy Securities is good at brokerage business. By the end of 2023, CICC's total assets will be 624.307 billion yuan, and China Galaxy Securities' total assets will be 663.205 billion yuan. If the two securities companies merge smoothly, their total assets will exceed one trillion yuan.

Industry fundamentals and valuations may have bottomed out

Under the requirement of "cultivating first-class investment banks and investment institutions", the merger process of domestic securities companies has been further accelerated. Many merger and reorganization cases, such as Western Securities + Guorong Securities, Guolian Securities + Minsheng Securities, and Zheshang Securities + Guodu Securities, are progressing in an orderly manner.

In its research report, AVIC Securities pointed out that M&A and restructuring are effective means for securities companies to achieve external expansion, which are of great significance to improving industry competitiveness, optimizing resource allocation, and promoting healthy market development. At the same time, the industry concentration is increasing, which is expected to form economies of scale. It is expected that M&A and restructuring within the industry will continue to accelerate, and securities companies that are targets of restructuring can be paid attention to.

It is worth mentioning that after several securities companies announced their semi-annual performance forecasts in July, the securities sector has gradually bottomed out and rebounded.

Among them, Hongta Securities expects its net profit attributable to shareholders of the parent company to be 449 million yuan in the first half of 2024, a year-on-year increase of 52.27%; Capital Securities expects its net profit attributable to shareholders of the parent company to be 455 million yuan to 495 million yuan in the first half of 2024, a year-on-year increase of 65.44% to 79.98%; Dongxing Securities expects its net profit attributable to shareholders of the parent company to be 530 million yuan to 630 million yuan in the first half of 2024, a year-on-year increase of 51.47% to 80.05%.

Analysts pointed out that the fundamentals and valuations of the securities industry have bottomed out. The price-to-book ratio of the securities company index tracked by the securities ETF fund has been only 1.12 times in the past 10 years, which is cheaper than about 99% of the time in the past 10 years, and expectations for industry mergers and acquisitions and restructuring are gradually being fulfilled.

In the future, it is expected that the pace of mergers and acquisitions and restructuring of securities firms will accelerate, and some mid-sized securities firms are expected to join the ranks of leading securities firms through mergers and acquisitions and restructuring.