China’s securities sector saw strong growth despite some volatility in 2015, however the market gradually stabilized in the first half of 2016, with risk management a key priority, according to KPMG’s latest survey.
KPMG China’s 10th annual survey of 125 securities companies in mainland China finds that although 2015 saw some market volatility, the sector nevertheless achieved record high results. Operating income increased by 125 percent to RMB 575 billion from a year ago, while net profit grew by 157 percent to RMB 244 billion. Net assets grew 60 percent to RMB 1.45 trillion, demonstrating the sector’s rapid growth in 2015. However, earnings in the first half declined 59 percent compared with the same period in 2015, according to statistics from the Securities Association of China, demonstrating increased volatility in earnings.
Bonn Liu, Head of Securities and Investment Management (ASPAC), KPMG China, says: “Only when a securities company’s risk management system has improved, and it is capable of safeguarding the business against future adverse developments, should innovative products and business lines be pursued. Without prudent risk management, the steady and sound development of the securities sector cannot be assured.”
“Going forwards, securities companies should assess potential risks on a real-time basis, improve their risk management abilities and establish sound risk management systems. This means that as the capital size and business scale of securities companies grow, business transformation can better serve the real economy and supply-side reforms as well as improve core competitiveness.”
Innovative financial technology is increasingly being used by a number of securities companies, and is expected to change the sector significantly in a longer term. However, most securities companies have yet to develop clear and effective strategies that constitute a breakthrough, the report highlights.
Abby Wang, Head of Securities and Investment Management (China), KPMG China, says: “Advances in technology such as the growth of new internet platforms and data analytics will continue to impact the traditional profit making business models of securities companies, therefore they need to further improve their use of technology and change their strategy to become Internet enabled in order to remain competitive.”
The report notes that the Chinese securities market is also becoming increasingly globalised, with more overseas mergers, cross-border listings in Hong Kong and launch of the Shanghai-Hong Kong Stock Connect. The Shenzhen-Hong Kong Stock Connect was also approved by the State Council in August. In addition, the approval of several fully licensed sino-foreign securities joint ventures in 2016 provided opportunities for a number of overseas entrants to the securities sector in mainland China.
Tony Cheung, Partner-in-charge of Financial Services Advisory, KPMG China, says: “International and Hong Kong investors will have a new channel to leverage China’s growth by accessing Chinese companies through the stock connect schemes. Meanwhile, removing aggregate trading quotas in the Shenzhen-Hong Kong Stock Connect symbolises the further opening up of China’s capital market and the strengthening of the trading links between the two regions.”
Liu concludes: “Reform of the financial services sector is one of China’s priorities as stated in the 13th Five-Year Plan, the securities sector will likely not be exempted from this. New business models and opportunities will arise at the same time as reforms take hold. We are confident that the industry will be an important contributor to China’s economic restructuring and supply-side reform.”
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In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.
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