China’s securities sector is expected to maintain its rapid growth despite market volatility in 2015, although recent fluctuations in stock market presented some challenges, according to KPMG’s latest survey.
KPMG China’s ninth annual survey of 119 securities companies in mainland China finds that 2014 was a bumper year for the sector as a result of their focus on reform and innovation in the past few years. Total income rose 64 percent year on year to RMB 255.3 billion while net profit rose 121 percent to RMB 94.9 billion.
The speed of the market’s development in the second half of 2014 and the first half of 2015 presented brokers with a number of challenges. Abby Wang, Head of Securities and Investment Management (China), KPMG China, says: “China's securities market experienced increased volatility between June and July 2015, this was a lesson in risk that all market participants should learn and was a stress test for all securities companies. Securities companies should be aware of the importance of risk management now. There is an urgent need for the industry to build a solid foundation in information systems, risk management and internal control so as to prevent risks. Risk management has become one of the key priorities that securities companies need to focus on.”
Bonn Liu, Head of Securities and Investment Management (ASPAC), KPMG China, says: “Reform and innovation remain the key priority for securities companies. In response to wider market opportunities and intensifying competition under the ‘new normal’, securities companies need to build their core competitiveness in order to better serve the real economy, contribute to the ‘mass entrepreneurship and innovation’ initiative, unleash market vitality, strengthen self-discipline, and establish a more effective liquidity and net capital management mechanism.”
China saw its capital market open up further in 2015. Tony Cheung, Partner-in-charge of Financial Services Advisory, KPMG China, says: “Some Hong Kong-owned or Taiwan-owned financial institutions are actively planning to establish fully licensed securities firms in mainland China. On the other hand, a number of Chinese securities companies have established their overseas presence through acquisition of foreign financial institutions, a move that helped accelerate their ‘go abroad’ strategy, facilitate their overseas resources integration and broaden their vision. We expect Chinese securities companies will continue to pursue more acquisitions overseas in the future.”
KPMG anticipates a few systemically important securities firms emerging over next several years and an increasingly important role played by boutique professional brokers. The report also notes more intense competition among brokerage firms and drop in the average commission rate. With further developments in internet finance and implementation of relevant policies, the average brokerage commission rate has room to decline further.
Liu concludes: “China’s securities companies are facing an array of new issues as China’s economy enters a ‘new normal’. Looking forward, we believe reform and innovation will continue to fuel sector growth, securities companies should also strike a good balance between rapid and prudent development. The recent volatility in China’s equities markets has given a timely reminder to the sector of the importance of proactive risk management. We believe that China’s securities sector has a bright future so long as it remains alert during the good times and takes prudent action to ensure that the industry is prepared for the downside.”
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KPMG China has 16 offices in Beijing, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR, with around 9,000 people.
KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.