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Securities brokerages suffering sharp drop in profits

By Geng Wenxin (Global Times)

08:07, May 15, 2012

Securities traders in China are facing a continuing slump in profits amid bearish market conditions, which will lead to a restructuring of the sector, insiders told the Global Times yesterday.

"The whole industry is facing a serious drop in profits due to the emergence of the bear market last year," Wang Cheng, an analyst at Shanghai-based Haitong Securities, told the Global Times yesterday.

Recent statistics from domestic financial intelligence service provider Wind Information Co showed that in 2011, the 109 securities trading companies in China had total operating revenue of 163.23 billion yuan ($25.82 billion), a drop of 21.07 percent year-on-year.

Their total net profit amounted to 45.6 billion yuan, down by 45.54 percent year-on-year, and their total assets shrank by 20.3 percent year-on-year. Only six securities traders in the industry saw net profit growth last year, and 18 made net losses, making it the worst year for the sector since 2004.

The bear market was the direct reason for the profit drop, according to Wang. "Securities traders' investment in stocks brought in very poor revenue last year. Also, very few investors entered the stock market last year and the frequency of securities trading was much less than normal, which created a big problem for securities traders' brokerage services," Wang said.

By December 27, 2011, the Shenzhen Stock Exchange Component Index was down by 30.08 percent, and the SME (small and medium-sized enterprise) index and GEM (growth enterprise market) index both saw falls of more than 30 percent. The Shanghai Stock Exchange Composite Index also dropped by 22.86 percent last year.

"The industry is undergoing a restructuring. Business is gradually concentrating with the big traders. Small traders must launch new and diversified services in order to survive," Jia Tao, a consultant at Shenzhen-based Essence Securities, told the Global Times.

The top 10 securities brokers in terms of net profit were the same last year as for 2010. However, the top 10 traders took 68 percent of net profit in the industry last year, 17 percentage points more than in 2010, according to Wind.

"Currently, traders' services are all very similar. In order to get more revenue this year, traders will have to launch more financing products to diversify their service catalog, such as securities margin trading and futures trading," said Liu Meihui, investment manager at Shenzhen-based China Merchants Securities.

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