Reaction to China’s Creation of $230 Billion Brokerage Powerhouse – Reuters

By Xie Yu

HONG KONG – Guotai Junan Securities, headquartered in Shanghai, is poised to acquire its local competitor, Haitong Securities, through a share swap. This move will result in the formation of a state-supported leader in the industry, boasting assets worth $230 billion, as authorities in Beijing aim to streamline the sector amid challenging market conditions.

Investors and analysts have shared their thoughts on this significant development:

ZHIYONG ZHENG, AN INDEPENDENT SECURITIES AND FUND INDUSTRY ANALYST BASED IN BEIJING, STATED: “China’s securities firms exhibit considerable similarities in terms of organizational structure and business focus. This leaves little opportunity for the merged entity to maintain redundant infrastructure. The merger of Haitong and Guotai Junan will enable the use of the same middle and back office services, likely resulting in substantial job cuts across various business lines.”

GARY NG, A SENIOR ECONOMIST FOR THE ASIA-PACIFIC REGION IN HONG KONG, COMMENTED: “The competitiveness of China’s securities industry has intensified in recent years, prompting the need for consolidation to lower costs and foster synergies. Although the market potential remains, profit margins are tightening. As a result, only larger securities firms are likely to withstand future challenges, suggesting that further mergers and acquisitions may occur, presenting a unique investment opportunity amid a lack of momentum in the country.”

HUANG YAN, A FUND MANAGER AT QIUYANG CAPITAL CO IN SHANGHAI, NOTED: “The discussions around a potential deal were anticipated, and this event marks the onset of industry-wide consolidation, likely leading to additional mergers among major brokerages.”

ANALYSTS FROM MORGAN STANLEY IN HONG KONG WROTE IN A RESEARCH NOTE: “The complexities and challenges associated with merging two large brokers with overlapping operations and realizing synergies should not be overlooked. Meanwhile, other leading brokers are likely to seek opportunities to expand their client bases and enhance market share and client relationships.”

ANALYSTS FROM HUATAI SECURITIES, BASED IN SHENZHEN AND SHANGHAI, NOTED: “Medium and large securities firms with strong shareholder backing, robust capabilities, and excellent management are expected to rise to prominence. Overall, this integration could boost short-term market sentiment and heighten expectations for more mergers and acquisitions in the sector. Investors are advised to consider securities companies controlled by the same shareholder.”