14-11-2018

The Chinese securities firms are struggling in a slowing global economy, coupled with the risk of forcing liquidation of pledged shares, which resulted in a significant plunge of their stock prices. However, the People’s Bank of China rolled out a series of measures to encourage banks to further increase their lending to private enterprises. Furthermore, the China Banking and Insurance Regulatory Commission (“CBIRC”) is considering setting targets for the proportion of banks’ new corporate loans to private enterprises. We believe Chinese securities firms could gain a short-term momentum amid the risk of forcing liquidation of pledged shares being reduced. Despite the fact that earnings of Chinese securities were poor, it’s in line with market expectation and it has already been priced in. The Chinese securities firms are currently undervalued with their P/B ratio sitting below one. The sector is anticipated to gain drivers for a rerate which may present investment opportunities for investors.

Reference:
Bloomberg
CBIRC
HK Economic Journal

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