Securities firms notch up record gains

Investors open stock accounts at an Everbright Securities Co Ltd branch in Haikou, Hainan province. Everbright Securities' net profit surged by 1,176 percent in the past five months. [Photo provided to China Daily]

Securities firms in China have seen their profit skyrocket amid the stock market boom with record-breaking turnover.

According to public information disclosed by 20 listed securities companies, their total net profit in May alone reached 12.8 billion yuan ($2.1 billion), surging by 597 percent from the same period last year. But the figure was slightly down by 7 percent from the previous month.

Their profits in the past five months have exceeded the total profit they earned in 2014, the data showed.

Analysts attributed the profit surge to the stock market rally which helped boost securities companies' revenue from their brokerage business along with commission and interest income from the margin trading which allows investors to borrow money to trade stocks.

The benchmark Shanghai Composite Index gained nearly 150 percent in the past year. In May, the average daily turnover value at the Shanghai and Shenzhen bourses reached a record 1.55 trillion yuan.

Shanghai-based Everbright Securities Co Ltd led the profit gain in the past five months with its net profit surging by 1,176 percent.

"With the support of the loose liquidity and policy reforms, the market will maintain active trading and we expect the profit growth of the securities companies to exceed 100 percent this year," Dai Pengju, an analyst at Sealand Securities Co Ltd, wrote in a research note.

In contrast to their encouraging financial results, stock prices of securities companies failed to keep up with the general market by gaining just 25 percent in the past three months. This compared to the nearly 50 percent gain for the benchmark Shanghai index during the same period.

Regulators' tightened scrutiny and restrictions on margin trading to cool the overheated market were cited as one of reasons for the disappointing stock performance of the securities firms.

But some analysts gave stocks of securities firms a "buy" rating as they believe that their business will continue to benefit from further reforms and opening up of the country's capital market.

The investment banking business of securities companies will also be bolstered by the abundant pipeline of new share sales as the regulator is accelerating the approval of companies' fund-raising applications through initial public offerings.

The soon-to-be-launched Shenzhen-Hong Kong Stock Connect program as well as greater allocation by the country's social security fund and foreign funds are expected to further lift the A-share market, analysts said.