CITIC SEC recommends focusing on brokerage stocks along two main lines: high certainty of earnings growth and long-term improvements in industry competition. It is anticipated that active market trading, a recovery in equity financing, and a rebound in derivatives business will drive performance improvements this year. The industry's return on equity (ROE) is expected to reach the 90th percentile of the past decade, while current price-to-earnings (PE) and price-to-book (PB) valuations are below the 20th percentile, highlighting attractive valuation levels. In the long term, synergies from mergers and acquisitions and expanded leverage will boost the market share of leading brokerages. Coupled with ongoing improvements in capital conditions, the sector has ample room for recovery. Investors may focus on top-tier and high-quality mid-sized brokerages.

Key views from CITIC SEC are as follows:

Industry profitability has improved year-on-year, with leading institutions maintaining high concentration levels. In the first quarter of 2026, listed brokerages achieved adjusted net profit attributable to shareholders of 59.5 billion yuan, up 39.9% year-on-year, reaching 87.6% of the level in the third quarter of 2025. Adjusted operating income stood at 151.2 billion yuan, a 31.5% increase year-on-year, equivalent to 88.9% of the third quarter of 2025. The industry's adjusted ROE recovered to 2.06%, up 0.46 percentage points year-on-year, second only to the 2.46% recorded in the third quarter of 2025. Leading brokerages performed even more strongly, with adjusted net profit attributable to shareholders of 44.4 billion yuan, a 47.5% year-on-year increase, and adjusted ROE reaching 2.35%, up 0.62 percentage points year-on-year. Profit concentration reached 74.7%, while revenue concentration stood at 69.3%, both higher than the same period last year.

Balance sheets continued to expand. In the first quarter of 2026, the total assets of listed brokerables exceeded 12 trillion yuan, with operating leverage rising 0.36 year-on-year to 4.18 times. Leading brokerages recorded an operating leverage of 4.58 times, widening the gap with the industry average from 0.34 at the end of the first quarter of 2025 to 0.40 at the end of the first quarter of 2026, reflecting superior capital utilization efficiency. In terms of revenue structure, light capital businesses (brokerage, investment banking, and asset management) and heavy capital businesses (interest and trading) each accounted for 46%, indicating a more balanced structure.

Light capital businesses: Leading brokerages maintained a strong position in brokerage and investment banking, while asset management net income surpassed the third quarter of 2025. In the first quarter of 2026, listed brokerages reported net brokerage revenue of 47.7 billion yuan, up 44.0% year-on-year, reaching 97.8% of the third quarter of 2025. Quarterly stock and fund trading volume reached 176 trillion yuan, up from 166 trillion yuan in the third quarter of 2025. However, due to a decline in commission rates to a historic low of 1.6 basis points in 2025, the trend of volume growth amid falling prices continued. The top ten brokerages by net brokerage revenue were all leading institutions, with their scale advantage further expanding. Net investment banking revenue stood at 8.9 billion yuan, up 31.0% year-on-year, reaching 92.0% of the third quarter of 2025. In terms of market performance, A-share equity financing reached 253.8 billion yuan (up 63.9% year-on-year), while Hong Kong IPO volume amounted to 109.9 billion Hong Kong dollars (up 489.3% year-on-year), both showing rapid growth. The top ten brokerages in A-share equity underwriting increased their combined market share to 92%, with CITIC SEC, China Securities, and Huatai Securities ranking top with market shares of 28%, 20%, and 18%, respectively, indicating further concentration. Net asset management revenue reached 13.5 billion yuan, up 27.6% year-on-year, exceeding the third quarter of 2025 level by 112.0%. Public fund assets remained stable at a high of 38 trillion yuan by the end of the first quarter of 2026, while brokerage asset management scale grew for four consecutive quarters to 6.4 trillion yuan by the end of the fourth quarter of 2025 (with collective asset management plans rising to 3.3 trillion yuan). Coupled with a general recovery in private equity subsidiary revenues in 2025, these factors contributed to improved business sentiment.

Heavy capital businesses: Net interest income exceeded the third quarter of 2025, with investment and trading capabilities determining industry differentiation. In the first quarter of 2026, listed brokerages reported net interest income of 14.7 billion yuan, up 91.8% year-on-year, surpassing the third quarter of 2025 by 104.0%. On the revenue side, the average daily balance of margin trading reached 2.66 trillion yuan in the first quarter of 2026, a record high. On the cost side, interest expenses declined for most brokerages year-on-year, with volume growth and cost reduction jointly driving a significant recovery in net interest income. Net investment and trading revenue stood at 55.1 billion yuan, up 12.6% year-on-year but only 73.2% of the third quarter of 2025, dragging down overall revenue. This was mainly due to market style shifts and increased volatility in the first quarter of 2026 (the Shanghai Composite Index, STAR 50, and ChiNext Index recorded gains of approximately -2%, -6.5%, and -1%, respectively, with significant deviations from their peak gains), placing higher demands on brokerages' ability to time the market and control drawdowns. In terms of allocation structure, leading brokerages such as China International Capital Corporation, Huatai Securities, and GF Securities maintained equity-to-bond ratios between 0.11 and 0.19 at the beginning of the period, with derivative financial assets accounting for 1.17% to 3.97%, indicating deeper non-directional investment trading exposure. Their investment returns remained relatively stable at 0.77% to 1.12% in the first quarter of 2026. In contrast, mid-sized and small brokerages with higher equity exposure (equity-to-bond ratios of 0.23 to 0.29) and lower derivative financial asset ratios saw more significant declines in returns.

Cost side: Optimized management expense ratios and credit impairment releases jointly supported profit flexibility. In the first quarter of 2026, listed brokerages reported total business and management expenses of 71.4 billion yuan, up 19.0% year-on-year. However, benefiting from faster revenue growth, the management expense ratio continued to decline to 47.2%, down 4.9 percentage points from 52.1% in the first quarter of 2025. Leading brokerages recorded a management expense ratio of 43.4%, down 4.4 percentage points from the first quarter of 2025, highlighting their cost control advantages under scale effects. In terms of credit impairment, total credit impairment losses were only 1.01 billion yuan in the first quarter of 2026, significantly lower than the 5.44 billion yuan in the fourth quarter of 2025 and 3.05 billion yuan in the third quarter of 2025. Coupled with the average margin trading collateral ratio remaining at a historically high level of around 280%, industry risk exposure is controllable, and asset quality remains stable, providing positive support for the full realization of profit flexibility.

International business: Characterized by "high leverage and high ROE," international operations are emerging as a new growth engine for leading brokerages. In 2025, international subsidiaries of top brokerages generally reported strong earnings growth. On the revenue side, GF Securities' international subsidiary (up 115.2%) and China Securities' international subsidiary (up 102.7%) led the way, while on the profit side, China Securities' international subsidiary (up 177.6%) and Orient Securities' international subsidiary (up 125.3%) showed significant flexibility. Key indicators show that China Securities' international subsidiary achieved an ROE of 19.1% and a leverage ratio of 11.7 times, significantly higher than the company's overall level. China International Capital Corporation reported overseas revenue and international subsidiary net profit contributions of 29.5% and 46.9%, respectively, leading the industry in internationalization. Overall, international business, with its broader global market space, more flexible leverage capacity, and significantly higher ROE compared to domestic operations, is expected to continue amplifying its contribution to group profitability, becoming a core engine for leading brokerages to navigate domestic cycles and achieve both valuation and earnings recovery.

Risk factors include a sharper-than-expected decline in stock and fund trading volume, tighter-than-expected IPO and refinancing policies, unexpected declines or increased volatility in secondary markets, customer credit risk exposure, weaker-than-expected execution of corporate strategies, and delays in policy implementation or regulatory easing.