Brokerages enjoy rising valuations, trading revenues

An investor sits in front of a screen displaying stock indices and prices of shares at a stock brokerage house in Huaibei city, East China's Anhui province, Dec 8, 2014. Xie Zhengyi / China Daily

Boom accelerated by surge in new individual stock-trading accounts

Chinese brokerage valuations have surged to their highest level in more than four years as Shanghai's surging stock market improves the prospects for trading revenue.

The Bloomberg Intelligence China A-Share Institutional Brokerage index, which tracks CITIC Securities Co and 21 of its peers, climbed 55 percent in the two weeks to Dec 5, pushing its valuation to 4.3 times its book value－the highest level since May 2010.

Brokerages rallied, extending gains on Monday amid record trading that drove the Shanghai Composite Index up about 22 percent in the past month, the most among 93 global indexes tracked by Bloomberg.

Chinese investors are opening stock trading accounts at the fastest pace in more than three years amid central bank efforts to bolster economic growth.

"The surging trading volumes will almost all translate into profit" for brokerages, said Zheng Chunming, a Shanghai-based analyst at Capital Securities Corp, who also warned that the $4.8 trillion stock market's gain could run out of steam.

China's biggest brokerages offer the best value for investors, according to Zheng and China International Capital Corp analyst Mao Junhua.

Small and medium-sized firms are trading at 3.9 times book value, 80 percent higher than the valuations for CITIC, the nation's largest brokerage by market value, and Haitong Securities Co, the second-biggest, Mao wrote in a report.

Book value is a measure of what would be left over for shareholders if all assets could be sold at current valuations and all liabilities paid off.

As stocks rallied through November and trading surged, analysts raised earnings-growth estimates for brokerages to a three-month high. They are projecting a 34 percent increase in the next 12 months, weekly data compiled by Bloomberg show.

The value of shares that traded on the Shanghai and Shenzhen stock exchanges surged above 1 trillion yuan ($163 billion) for the first time on Friday. Turnover in the past month has averaged 528 billion yuan, double the average for the year, according to data compiled by Bloomberg.

CITIC's President Cheng Boming told reporters in New York last month that profit could rise to 50 billion yuan by 2020, indicating an increase of almost 10 times from last year's net income. First-half net income jumped 93 percent to 4 billion yuan, company filings show.

Chinese investors opened 370,000 new stock-trading accounts in the week to Nov 28, the most since April 2011, China Securities Depository &Clearing Corp data show.

"You needed to queue to open a stock trading account" last week, said Jiao Wenchao, an analyst at Ping An Securities Co. Through this week at least, "trading volumes should continue to be high. Sentiment remains strong".

Trading volumes should continue to be high. Sentiment remains strong."