Stocks News
- Brokerages benefit from booming stock market
Date: 27-Sep-2007 Sources: (Shenzhen Daily)
CITIC Securities Co. is the fastest-growing brokerage firm in the world thanks to the booming market for Chinese stocks, and Wall Street may have to get used to the industry neophyte challenging Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co. as the biggest.
Founded just 12 years ago, Beijing-based CITIC now has a market capitalization of US$39.4 billion, or US$7.6 billion more than Lehman Brothers Holdings Inc., US$23.1 billion more than Bear Stearns and US$15.1 billion more than Charles Schwab Corp., after rising threefold in 2007. Haitong Securities Co., China's No. 2 brokerage, also eclipsed Bear Stearns as the seven-largest U.S. brokers lost US$37 billion in value this year.
Chinese firms will keep growing as investors pour more of their US$2.2 trillion savings into stocks, said Chan Kum Kong, who helps manage US$15 billion at DBS Asset Management in Singapore.
'The prospects are definitely bright for Chinese brokerages, which will continue to grow with the market,'' said Chan, whose holdings include CITIC shares. 'A few will be able to move out of their domestic markets to compete internationally.''
While Chinese securities firms only operate at home for now, their rise has already reshaped the list of the world's biggest brokers by market capitalization. A year ago, Wall Street firms occupied the top five slots while China had none among the first 10. CITIC has now claimed the No. 4 position while Haitong, at US$20.1 billion, is eighth. Only Goldman, Morgan Stanley and Merrill Lynch remain larger than CITIC.
When global banks with securities arms are added, CITIC ranks No. 8 on a list that includes Citigroup Inc., JP Morgan Chase & Co., UBS AG and Credit Suisse Group. Citigroup, the largest U.S. bank, has a capitalization of US$230 billion. Goldman, the most profitable securities firm, has a value of US$91.2 billion, making it the U.S.'s biggest brokerage company.
China's benchmark CSI 300 Index has climbed 167 percent in 2007, the best performer among 89 major global equity indexes. Investors in China have opened 46 million trading accounts this year alone, nine times 2006's amount. Total accounts have swelled to 125 million.
CITIC's rise is reminiscent of that achieved by Nomura Holdings Inc. in the late 1980s when the Tokyo-based company became the world's largest securities firm with a value of US$76 billion, 18 times that of Merrill. Nomura's shares plunged 86 percent in the 11 and half years after its April 1987 high as Japan's bubble economy burst. Its market size is now US$31.7 billion.
The rally in China has propelled Beijing-based Industrial & Commercial Bank of China Ltd. past New York-based Citigroup as the world's largest bank by market value, and Air China Ltd. past Singapore Airlines Ltd. as the largest carrier.
China's four listed brokers - CITIC, Haitong, Hong Yuan Securities Co. and Northeast Securities Co. - have soared an average of 497 percent this year, valuing them at 36 times estimated earnings. CITIC's market value has climbed US$29.4 billion this year. Haitong's has gained US$19.8 billion.
U.S. securities firms have struggled as subprime mortgage lending ground to a halt, with foreclosures on home loans rising to a record. Revenue from packaging loans into bonds fell as investor appetite for such securities dwindled. Bear Stearns lost almost a third of its value this year after two of its hedge funds failed in July because of subprime mortgage losses.
A measure of the share performance of securities firms in the Standard & Poor's 500 Index has fallen 11 percent in 2007. Lehman, Bear Stearns and Morgan Stanley last week reported declines in profit as trading in fixed-income faltered. Shares of all three dropped.
Chinese securities stocks could plunge as quickly as they've risen if a downturn were to hit Asia's most expensive share market, said James Liu, who helps manage US$1 billion at APS Asset Management. Incomes at brokers suffer during declines because of fewer trades.
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