Core Insights - The report analyzes the reasons why the brokerage sector struggles to achieve excess returns in the later stages of a bull market and suggests that brokerages may gain excess returns under a slow bull market with increased leverage [6] - The report upgrades the rating for the non-bank financial sector to "Recommended" due to the favorable conditions of a slow bull market that enhances returns [6] - Individual stock recommendations prioritize large brokerages that benefit from increased leverage, while also highlighting arbitrage opportunities from brokerage mergers [6] Section Summaries 1. Historical Review of Securities Market - Historical bull markets show that brokerages outperform the market in the early stages but fail to maintain relative returns in the mid-stages due to declining ROE and the historical pattern of short bull and long bear markets [11][18] - The report emphasizes the correlation between declining ROE and the decreasing attractiveness of brokerages to funds, as evidenced by the low dividend yield of around 1.5% in December 2025 [18] 2. A-shares Expected to Maintain Slow Bull Market in 2026 - Regulatory policies are being implemented to encourage long-term capital inflows, which are expected to support a stable market environment [24] - The report notes that the decreasing volatility in the A-share market is conducive to the sustainability of the bull market, contrasting with previous high-volatility periods that hindered long-term growth [30] 3. Recovery of Brokerage Business - Brokerage revenues are closely tied to market performance, with a notable recovery in brokerage, margin financing, and investment banking businesses expected as market conditions improve [39] - The report highlights that the trading volume in A-shares has reached significant levels, providing support for brokerage performance, and notes the rise of ETF investments as a new revenue source for brokerages [45] 4. Investment Recommendations - The report suggests prioritizing investments in large brokerages that are likely to benefit from increased leverage, which can enhance ROE and valuations [63] - It also points out potential arbitrage opportunities arising from brokerage mergers, citing specific examples of cash options and share exchange ratios that present investment opportunities [64]

Core Viewpoint - The core driver for the rise in brokerage stocks is the high trading activity in the market combined with the fundamental recovery brought about by stable market upward trends [1][2] Group 1: Market Dynamics - The brokerage sector's performance is closely tied to macroeconomic conditions and is sensitive to economic cycle turning points [1][2] - Brokerage stocks typically perform well during interest rate cuts, as loose monetary policy leads to increased liquidity and positive market sentiment [1][2] - Macro and industry-related policies play a decisive role in initiating brokerage stock rallies, with historical examples including the stock reform in 2005-2007 and the "Four Trillion Plan" in 2008-2009 [2] Group 2: Profitability and Valuation - The profitability of brokerages is highly correlated with capital market performance, leading to significant earnings growth during bullish phases [2] - The transition from light to heavy capitalization has resulted in a downward shift in the ROE (Return on Equity) and valuation levels of brokerages [2] - Future development of innovative businesses, such as off-exchange derivatives, may provide opportunities for systematic improvement in industry ROE [2] Group 3: Characteristics of Leading Stocks - Leading stocks in the brokerage sector during past rallies exhibit beta characteristics, with those aligned with prevailing trading themes often yielding excess returns [3] - Newly listed stocks tend to have smaller free float market capitalizations, resulting in significant price elasticity during brokerage rallies [3] - Brokerage firms with performance elasticity, driven by revenue and cost dynamics, are typically more resilient during market fluctuations [3]