Gf Securities Co.,Ltd. has released a research report indicating sustained activity in the capital markets and a continued upward trend in the performance of the brokerage sector. However, valuations have lagged behind this performance, suggesting significant potential for a subsequent recovery. Under a neutral scenario, the report forecasts a 27% year-on-year increase in industry net profit for 2026. It expresses optimism regarding the enduring growth of the wealth management ecosystem and notes that the transformation of proprietary business models and deepening internationalization are expected to enhance the leverage and return on equity (ROE) for leading brokerages. Investment banking and its capital market activities are seen as potential drivers for high-growth elasticity in brokerage earnings, with the sector still considered to be in the early stages of a recovery.

Key Factors for Valuation Improvement

As funding pressures ease and incremental capital continues to enter the market, there is substantial room for improvement in the valuation and positioning of the brokerage sector. This is further supported by public funds strengthening performance benchmarks. The increasing technological and innovative attributes of the sector are also expected to enhance profit elasticity and growth trends. The main viewpoints from Gf Securities Co.,Ltd. are outlined below.

Market Performance and Divergence

The securities sector experienced persistent underperformance in the first half of 2026, trailing the Shanghai Composite Index by 11%. Since September 24th, the underperformance widened to 15%, primarily due to funding constraints and market volatility. Despite the sector's weak overall market performance in H1 2026, significant divergence was observed among individual stocks. Brokerages with a strong focus on technology and innovation contributed notably to earnings and valuation elasticity through capital gains.

Broad-Based Business Recovery

A synchronized recovery in primary and secondary markets has led to a comprehensive upturn in business activity. Market liquidity has continued to improve, with the average daily trading volume by the end of June increasing by 89% year-on-year. Notably, January, May, and June saw growth exceeding 100%. The balance of margin trading and securities lending reached 3 trillion yuan, a 62% increase year-on-year. Concurrently, the scale of A-share IPOs in H1 2026 rose by 86% year-on-year, and bond financing by securities firms increased by 14%, with leading brokerages demonstrating a pronounced advantage.

Capital-Intensive Business Transformation

Driven by technology and internationalization, capital-intensive businesses are witnessing a recovery in both return on assets (ROA) and leverage. The transition towards a technology-driven industrial economy holds promise for capital market elasticity. Policy optimizations and improving market conditions are fostering a recovery in investment banking and capital market activities, though this recovery is still in its nascent stages. Beyond one-time underwriting and sponsorship fees, the recovery in investment banking is characterized by more substantial capital gains. Brokerages have established a dual-track model for primary investments involving "private equity fundraising + alternative investment subsidiaries' co-investments/direct investments." Data from sponsor co-investments in the ChiNext and STAR Market boards shows that brokerage industry co-investment floating profits on the STAR Market have already reached 6.6 billion yuan this year, far exceeding the combined total from 2022 to 2025. This profit is concentrated among eight brokerages, indicating significantly heightened market concentration. The private equity cycle—fundraising, investment, management, and exit—is showing signs of recovery. Alternative investment subsidiaries, utilizing proprietary capital, are better positioned to serve and retain high-quality enterprises, capturing growth opportunities in emerging industries, with potential for further increases in direct investment ratios.

Leverage and ROE Enhancement Through Internationalization

The deepening of international operations is expected to elevate leverage and ROE levels for brokerages. Regulatory differences create variances in leverage efficiency; international subsidiaries of Chinese brokerages typically operate with leverage ratios between 7x and 10x, significantly higher than the group-level ratios of 4x to 6x. Leading brokerages are leveraging capital-intensive businesses, such as equity derivatives and FICC (Fixed Income, Currencies, and Commodities), to achieve high leverage and profitability. These businesses are anticipated to become core, long-term growth drivers with relatively controllable risk exposures post-hedging. The competitive advantage of top brokerages in international business stems from high capital operation efficiency, cross-border synergy across the full business chain, a global client network, and robust compliance infrastructure. Current efforts are accelerating international capital increases and fundraising, with clear allocations towards high-value-added businesses like cross-border derivatives, FICC capital intermediation, wealth management, and cross-border investment banking. This shift is moving international operations from a light-asset experimentation phase to a heavy-asset, deep cultivation phase.

Fee-Based Business Development

Policy optimization and sustained positive conditions are driving the transformation and steady recovery of ROE in fee-based businesses. On the demand side, the persistent shortage of high-quality assets supports a long-term trend of converting deposits into "asset-containing" investments. Capital inflows into the stock market are still in their early stages, suggesting a path for steadier, more sustained growth. The high growth of private funds aligns with the higher risk appetite of high-net-worth individuals, while the growth of "fixed-income plus" and FOF-type products meets the demand for the migration of household deposits. The popularity of ETFs caters to both market structural opportunities and the asset allocation needs of long-term capital.

Supply-Side Optimizations

On the supply side, product and service enhancements are increasingly focused on delivering tangible returns to investors in a potential "slow bull" market. Public fund products are emphasizing expansion in equity offerings while improving investor experience through benchmark constraints, style management, and long-term performance evaluation. Buyer's investment advisory services are poised to become a crucial lever for transforming brokerage wealth management from transaction-driven to client asset-driven models.

The report concludes with risk warnings, including potential economic downturns exceeding expectations, impacts from interest rate fluctuations, and intensifying industry competition.