Shenwan Hongyuan Group Co., Ltd. has released a research report stating that the operating conditions of the securities sector continue to improve. The industry's strong second-quarter performance, with some companies expected to show further sequential profit growth, is being consistently validated. Policy catalysts are materializing, while funding-related factors are gradually subsiding.
Simultaneously, the sector may see potential catalysts across multiple business lines such as technology innovation, wealth management, and international operations, potentially leading to improvements in both earnings and valuations in the second half of the year. The report recommends two investment themes: 1) leading institutions that are currently undervalued, benefit from industry consolidation, and possess strong comprehensive capabilities; and 2) specialized brokers with attractive valuations and a clear logic for return on equity improvement.
Key Developments and Analysis
The positive operating trend for the first half of 2026 is being confirmed, with 17 listed securities firms pre-announcing positive earnings results, highlighting the advantages of top-tier brokers.
As of July 15th, the window for disclosing semi-annual performance forecasts for the Shanghai and Shenzhen main boards has closed. Within the sector, 17 listed brokerages have disclosed their first-half forecasts, all of which are positive. Among these, 7 of the pre-announcing firms are from the top ten leading institutions, based on 2025 net profit attributable to parent company shareholders. The proportion of positive forecasts among these top-tier firms is significantly higher than among mid-sized and smaller institutions, indicating an underlying industry trend that cannot be overlooked.
Three Core Business Drivers
The three business lines of technology innovation, wealth management, and international operations provide strong earnings momentum, with leading institutions benefiting from their "conglomerate" development model.
The retail wealth management business operated in a favorable environment in H1 2026, providing a solid foundation for overall performance. However, considering that businesses like brokerage and margin lending often rely on volume to compensate for pricing pressure, they offer limited potential for superior growth dynamics.
Significant earnings drivers are more evident in the three key business lines: technology innovation, wealth management, and international operations. As these operations are often conducted through specialized subsidiaries, leading institutions with advanced "conglomerate" structures are positioned to benefit more prominently.
1) Technology Innovation: This area provides strong sequential quarterly growth momentum. A key feature of the domestic capital market in Q2 2026 was the strong performance of technology innovation stocks. The extent and precision of brokers' prior equity investments in this sector determined their ability to fully capitalize on this trend and achieve robust quarter-on-quarter growth.
2) Wealth Management: Superior client quality and comprehensive service chains are expected to enable better capture of market opportunities. Top-tier brokers hold advantages in serving high-net-worth clients and are likely to lead in niche areas like private fund distribution. Furthermore, institutions with high-quality stakes in public fund managers and strong asset management subsidiaries can leverage their full wealth management chain to seize market opportunities effectively.
3) International Operations: Marginal balance sheet expansion in overseas subsidiaries is opening new growth avenues. International subsidiaries have become a significant area for incremental balance sheet growth, with the importance of international business within the overall portfolio continuously increasing. Leading brokers are expected to persistently utilize international business development to expand their operational scope and drive the improvement of their core return on equity.
Broader Implications and Sector Outlook
While the strong catalyst from technology innovation equity investments in H1 2026 has been widely recognized and traded on by the market, several deeper points warrant attention. First, the powerful boost from this single business line represents the beginning of a trend, not its conclusion. Brokerage operations are closely linked to the development of the technology innovation industry. Leading institutions with comprehensive layouts across the financing chain, product offerings, and wealth management services will continue to benefit substantially over the long term from this major trend.
Second, the development of specialized businesses like technology innovation, wealth management, and international operations fosters hope for an industry-wide ROE uplift, serving as a crucial anchor for medium-to-long-term valuation. Return on equity is a core fundamental driver for the sector's price-to-book valuation. Beyond the current favorable operating conditions, the leading positions of top-tier brokers in these three high-ROE-potential business areas, along with their pioneering efforts in cross-business collaboration, point towards a direction for lifting the sector's overall ROE level beyond the narrative of single-license operations.
Third, ongoing consolidation among peers is continuously optimizing the industry's competitive landscape, with top-tier institutions being the primary beneficiaries. As merger and acquisition cases within the industry continue to materialize, key operational resources—including client bases, capital, and talent—are increasingly concentrating towards leading firms. This trend, combined with operational efficiency gains, leverage utilization, and scale effects, is persistently refining the industry's operational ecosystem.
Risk Factors
Potential risks include a sharper-than-expected decline in market turnover, greater-than-anticipated volatility in the market value of technology innovation portfolio companies, and slower-than-expected progress in overseas business expansion.