On Monday, HSBC adjusted its stance on CITIC Securities Company Limited (6030:HK) (OTC: CIIHY), shifting from a "Buy" rating to a "Hold." The firm also raised the price target to HK$24.50, up from the previous HK$15.60. The revision follows a significant surge in the value of Chinese brokerage shares, with the sector experiencing its strongest rally since 2015.
The recent rise in the Chinese stock market has been fueled by a heightened risk appetite among investors, leading to a surge in new account openings. During the Golden Week holiday earlier in October, brokerage employees worked extra hours to accommodate the influx of retail investors eager to participate in the market's upswing. This trend echoes the market behavior observed in 2014, which preceded a year-long rally.
HSBC anticipates that the brokerage, investment banking, and margin trading business lines could benefit from the increased market activity. The firm notes that brokerage incomes are likely to grow with more market participants, while IPO and refinancing activities may see a recovery due to rising market turnover. Additionally, margin trading turnover is currently under 10% of total market turnover, suggesting that there is potential for investors to increase leverage.
The report also mentions that the resumption of trading for Guotai Junan and Haitong Securities within the month could serve as a short-term catalyst for the brokerage sector.
However, despite the positive market trends, HSBC has downgraded CITIC Securities' H-shares to a "Hold" rating, citing the stocks' current 40% premium over their historical average as a reason for caution.
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