BUZZ-China brokers: A work in progress
The Chinese brokerage sector presents one of the clearest cases for investors looking to jump on the government's reform bandwagon and the recent China Everbright Securities debacle is likely to hasten rather than delay regulators' efforts.
** Among various reforms, or talks of reforms, underway in China those directed at financial services & capital markets are progressing the quickest and brokers are directly impacted.
** Specific to brokers a slew of steps from Oct 2011 onwards have shown that the CSRC to be one of the most active regulators in China. A recent change of chairman has not dented the agenda.
** Margin financing, securities borrowing, raising regulatory leverage limits for brokers, securitization and developing a debt capital market are key.
** Among financials, brokers are actually levering up. And even with market weakness, per UOB Chinese brokers sported return on assets of 2.6% compared with 1.3% for Chinese banks and 0.7% for insurers in 2012.
** Financials remain the biggest part of Chinese benchmark indexes and with low appetite for banks and insurers, brokers remain a likely pick for offshore fund managers.
** In the short-term, brokers' profits are closely tied to market sentiment on the mainland which has been anemic at best but there are signs that trading volumes are slowly coming back. link.reuters.com/hyh52v
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