The latest research from Open Source Securities highlights that the sustainability of earnings holds greater significance than the pace of growth for major brokers. The firm identifies three core narratives driving the re-rating of leading securities firms.

For the first half of 2026, the 39 listed brokers tracked by the report generated adjusted revenue of RMB 356.2 billion and non-GAAP net profit attributable to shareholders of RMB 151.5 billion, representing year-on-year increases of 47% and 64%, respectively. Notably, the top-tier brokers outpaced the sector with a 74% surge in non-GAAP net profit and an average annualized weighted ROE of 13.7%, cementing their leadership in both growth and profitability.

The robust profit expansion observed among major brokers is attributed not only to a recovering market environment but also to the structural growth in their wealth management, international, and technology-focused investment banking operations. The accumulation of product AUM is fostering recurring fee income, while the expansion of client-driven overseas businesses is boosting both scale and profits. Additionally, financing and listings for tech ventures are contributing underwriting revenue and investment gains.

Instead of fixating solely on near-term growth figures, the report emphasizes the durability of earnings derived from AUM-based fee income and client business expansion. It also flags the potential volatility that tech investment gains could introduce to single-quarter results. Given the deep strategic positioning of leading brokers across these three business lines, their advantages in client acquisition and project sourcing are expected to translate into increased market share. This, coupled with more efficient capital allocation and sustained dividend payouts, supports the view of a higher ROE trajectory that could unlock valuation upside.

Top recommendations include CITIC Securities, GF Securities, Huatai Securities, CICC (H shares), and Guotai Haitong. Among these, CITIC, Huatai, GF, and CICC are characterized by more diversified growth drivers, which strengthens their earnings sustainability. Guotai Haitong, meanwhile, offers a unique combination of integration potential and tech-investment flexibility.

Segment-wise, the mid-year results reflect strong momentum in distribution and overseas operations, alongside significant profit leverage from tech investments. Distribution revenue climbed 85% year-on-year, supported by the monetization of accumulated client assets and the expanding scale of advisory and buy-side services. Overseas revenue grew 70%, fueled by both client business development and balance sheet expansion. A revival in domestic and international IPO activity lifted net investment banking income by 25%, with major brokers outpacing smaller peers significantly (41% growth versus a 1% decline, respectively).

Direct tech investments and co-investments have amplified profit volatility for most brokers. Firms like China Merchants Securities and Guotai Haitong derive a notable share of profits from their PE and alternative investment arms, whereas Huatai, GF, and CICC show more moderate and stable contributions from these activities, indicating less reliance on such volatile income streams.

The investment thesis for securities stocks rests on three key pillars: First, a gradual bull market environment is conducive to client asset accumulation, with rising demand for household wealth allocation, cross-border corporate financing, and tech venture growth driving the transformation across the three business lines. Fee-based wealth management income and overseas client revenue are enhancing earnings persistence, while a pipeline of tech projects generates underwriting, management, and investment opportunities.

Second, the demanding requirements of cross-border, OTC derivatives, and integrated investment banking businesses—spanning licenses, capital, client networks, and expertise—present significant entry barriers. The long-term investments made by major brokers in these areas are creating competitive moats that should funnel incremental business toward the top players, converting economies of scale and comprehensive service capabilities into profitability advantages.

Third, in contrast to historical large-scale rights issues, some brokers are now opting for H-share financing to support their overseas and cross-border initiatives, with clearer capital deployment plans. Mid-year cash dividends among listed brokers increased by 45% year-on-year, while annual dividend policies have remained broadly stable. The combination of prudent financing, enhanced capital efficiency, and continuous dividend distribution is expected to more effectively convert profit growth into per-share earnings and shareholder cash returns.

Risk factors include market volatility and declining trading activity, slower-than-expected recovery in investment banking and tech investment returns, underwhelming performance in wealth management transformation and asset management growth, and regulatory changes affecting cross-border and derivatives businesses.