Chinese brokerages have largely been involved in less capital demanding business such as trading and underwriting after three decades of development. They will need capital to build out a broader array of investment banking services, market making and margin lending. Meanwhile, many small- and medium-sized firms are struggling as an exodus of retail investors halved income in 2018.
Citic is most in the spotlight when it comes to consolidation. The Beijing-based broker, already the largest in China, said earlier this year that it’s considering more acquisitions after snapping up rival Guangzhou Securities Co. for $2 billion in December. Citic has bought a number of brokerages over the years, including Wantong Securities Co. The firm’s market value is less than half of Goldman Sachs’s, but it’s competitive in various businesses in Asia, ranking the third in Asia ex-Japan equity offerings this year, after Morgan Stanley and CICC, according to data compiled by Bloomberg.
Citic declined to comment on any potential acquisition plans.
Smaller deals are popping up. Tianfeng Securities Co. said in June it plans to buy a 30% stake in Hengtai Securities Co. Last month, Huachuang Securities Co., announced plans to buy a 6% stake in Pacific Securities.
The markets are also sensing that a turnaround could be coming for the struggling industry. A Bloomberg index of shares in Chinese brokerages is up about 10% from late November.
China Galaxy International Financial Holdings said in a Dec. 15 note that Citic is “well positioned to benefit from potential policy support” as China builds bigger investment banks.
“We believe there will be more concrete measures to follow soon, such as support in strengthening the capital base and M&A,” Galaxy analysts Wong Chi Man and Mark Lau wrote.
--With assistance from Zheng Li, Heng Xie and Haze Fan.
This article was provided by Bloomberg News.