From a return-on-equity standpoint, the investment appeal of brokerages extends beyond short-term capital market beta, with greater emphasis warranted on return-on-assets levels, earnings stability, and the capacity for effective balance sheet expansion, according to a research note from Orient Securities Company Limited.

The firm identifies three capital return models worth focusing on at present. First, comprehensive leading brokerages that demonstrate strong capabilities in capital-intensive businesses and can sustain reasonable ROA under higher operating leverage. Second, efficiency-driven brokerages that achieve high profitability per unit of assets and can further expand capital intermediation scenarios through their client and institutional business foundations. Third, platform-based brokerages that leverage their platforms, traffic, and client resources to establish high-ROA, low-leverage characteristics while retaining further monetization potential from their customer base. As capital intermediation businesses such as market making, derivatives, institutional trading, cross-border activities, and comprehensive financing continue to deepen, companies with advantages in client base, capital strength, financing capabilities, and risk management are poised to more fully convert their superior ROA into ROE.

Where to Focus

ROA determines the earnings foundation, while operating leverage determines the magnitude of ROE amplification. The effective alignment of these two factors is central to understanding the long-term capital returns of brokerages. Historically, the primary direction of listed brokerages' ROE has been determined by ROA, but in recent years, the contribution from operating leverage has notably increased. From 2023 to the first quarter of 2026, the ROA of listed brokerages improved from 1.1% to 1.5%, while ROE rose from 5.3% to 8.4% over the same period, with operating leverage climbing from approximately 4.8 times to 5.7 times. Similar ROE levels can correspond to entirely different profit models, and assessing brokerage capital returns requires simultaneous attention to both per-unit asset profitability and the scale of balance sheet that the business model can support.

ROA is jointly determined by earnings conversion efficiency and asset utilization efficiency, with different businesses influencing asset profitability through distinct pathways. In 2024, 2025, and the first quarter of 2026, the net profit margins attributable to shareholders of listed brokerages rose to 31.0%, 40.8%, and 42.4% respectively, while total asset turnover declined to relatively low levels during the same period. The recent recovery in ROA has primarily come from improvements in earnings conversion. At the business level, proprietary trading hinges on asset scale, per-unit returns, and earnings stability. Credit businesses are jointly determined by market financing demand, client base, and per-unit asset returns. Light-capital businesses such as brokerage, asset management, and investment banking contribute revenue with relatively low asset occupation while generating demand for capital-intensive businesses through their clients, AUM, and project resources. Cost structures determine the normal level of earnings conversion, while impairment losses amplify ROA declines during stressed periods.

Beyond Simple Leverage Expansion

Raising operating leverage itself does not create value; genuine business demand and reasonable marginal returns on assets determine whether balance sheet expansion can enhance ROE. If newly added assets can serve investment, credit, market making, derivatives, and other capital intermediation needs while maintaining reasonable returns after deducting financing costs and potential risk losses, asset growth can improve operating leverage while controlling ROA dilution. In the absence of high-return asset deployment scenarios, expansion may instead reduce per-unit asset profitability. Light-capital businesses simultaneously serve the function of acquiring clients and project resources during this process, and the higher the efficiency of converting these resources into financing, trading, and risk management demand, the more likely capital scale will generate sustained profit contributions.

International experience further demonstrates that the key to higher ROE lies in whether the balance sheet can consistently serve genuine client demand. From 2016 to 2025, Goldman Sachs and Morgan Stanley recorded average ROA of only 0.9% and 1.0% respectively, lower than the 1.6%, 1.6%, and 1.3% achieved by CITIC Securities, Huatai Securities, and CICC, yet their average operating leverage reached 12.2 times and 11.4 times, significantly higher than the 5.2 times, 4.8 times, and 6.5 times of the three domestic brokerages. A substantial portion of US leading investment banks' assets is deployed in trading inventory, secured financing, securities lending, and client financing, with institutional clients' trading, financing, and risk management needs providing sustained asset absorption for high leverage. Domestic brokerages already possess a solid ROA foundation, and the future elevation of ROE levels depends more on expanding asset deployment scenarios through capital intermediation businesses such as market making, derivatives, institutional trading, cross-border activities, and comprehensive financing, while simultaneously enhancing financing and risk management capabilities.

Risk Factors

Risks include significant volatility in capital markets, investment business returns falling short of expectations, slower-than-expected recovery in capital market financing activities, industry regulatory policy and compliance risks, overseas business operational risks, and the risk that international experience may not fully apply due to differing market conditions.