Core Insights - The report maintains a positive outlook on the securities industry, highlighting a phase of profit growth, structural evolution, and valuation recovery for 2026 [1] Industry Performance Overview - The overall industry performance is expected to see significant growth in 2025, with a mismatch between valuation and performance [4] - From January to November 2025, the Securities II (Shenwan) index increased by 5.6%, underperforming the CSI 300, while the Hong Kong Chinese securities index rose by 42.7%, outperforming the Hang Seng index by 10.9 percentage points [6] - In the first three quarters of 2025, 42 listed securities firms reported a combined revenue and net profit increase of 43% and 62% year-on-year, respectively, with an annualized ROE increase of 2.5 percentage points to 7.3% [6] Business Review and Outlook - **Brokerage Business**: The brokerage business is expected to benefit from increased trading volumes, with significant revenue growth anticipated in 2025. However, a decline in commission rates may limit profitability in traditional channel businesses [8] - **Proprietary Trading**: The contribution of proprietary trading to industry performance has significantly increased, with differentiation among firms based on investment capabilities and equity positions. Leading firms are expected to see stable returns, while smaller firms may experience higher volatility [9] - **Asset Management**: The asset management sector is entering a recovery phase driven by public fund transformation, with expected revenue growth of 33% year-on-year in 2026 [10] - **Investment Banking**: The investment banking sector is anticipated to enter a recovery cycle in 2026, supported by improved market conditions and policy incentives [10] Investment Themes for 2026 - The securities sector is positioned as a cost-effective investment opportunity due to its low valuation and performance recovery phase. Key factors include a clear trend of asset allocation towards equities, a recovery in multiple business lines, and supportive policies [12] - Recommended focus on leading securities firms with stable ROE, such as CITIC Securities, Huatai Securities, and GF Securities, which are expected to achieve ROE of 10.1%, 9.4%, and 9.4% in 2026, respectively [12] - Attention should also be given to firms with distinctive asset management and investment banking capabilities, such as Industrial Securities and China International Capital Corporation, which are well-positioned to benefit from ongoing market trends [12] Policy Environment - The report outlines a clear policy direction for the securities industry, emphasizing a shift from scale expansion to functional positioning and high-quality development. This includes a focus on value competition and the optimization of risk control indicators for leading firms [30][32] - The regulatory framework is evolving to support differentiated capabilities and strategic positioning among firms, with an emphasis on enhancing professional services and internationalization [32][34]