June a Bleak Month for Brokers Due to Lackluster Stock Market

The aggregate net profit of 19 brokerages listed in China slid 72.4 percent month-on-month in June, and seven brokerages reported a loss amid tough market conditions, according to brokerages' financial statements.

Analysts said that brokers' traditional business had taken a hit from the weak stock market and worsening investor sentiment, but innovative activities such as margin trading might boost brokerages' profits in the future.

The capitalization of the A-share market contracted some 3.5 trillion yuan (US$570.6 billion) in June, and lower volume affected brokerages' performance "significantly", according to a report by TX Investment Consultancy.

The continued suspension of initial public offerings has also affected investor sentiment and brokers' income growth, TX said.

Among all investment categories, equities were among the least popular, the latest study of investment sentiment by Manulife-Teda Fund Management found. Some 33 percent of polled investors said they would not invest in the stock market due to high volatility.

"Investors believe that bank savings are a safer choice amid current sluggish market conditions, and they cannot afford the cost of investment mistakes," said Liu Qingshan, general manager of Manulife-Teda Fund Management.

Brokerages' first-half results were stronger than in the second half of 2012, indicating a slow but steady recovery of the stock market in China, said Wu Yinzhou, an analyst with Shanghai Fulun Consultancy.

Brokers' aggregate first-half net profit reached 11.65 billion yuan, up 6.2 percent year-on-year.

"Brokerages' reports for the first half have shown that some of them are still making profits in a sluggish market thanks to growing innovative businesses," said Wu.

Among the 19 listed brokerages, Haitong Securities Co Ltd had the largest first-half net profit, with a record of 2.42 billion yuan. CITIC Securities ranked second with 1.8 billion yuan.

Innovative businesses such as securities margin trading, asset management and bond repurchase trading have greatly contributed to profit growth, said a report of Northeast Securities Co Ltd, which posted net profit of 308 million yuan, up 150 percent year-on-year.

Share prices of some listed brokerages rallied on Wednesday in response to their positive interim results.

Shanghai-listed Founder Securities Co Ltd gained 8.59 percent on Wednesday, closing at 5.56 yuan. Northeast Securities Co Ltd gained 5.5 percent to 17.26 yuan.