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Non-Bank Finance Industry Research Summary

1. Market Overview

The report analyzes the non-bank finance sector, with a focus on the securities industry. For the week, the sector saw heightened volatility due to strong economic expectations but weak actual performance. Key drivers include the Chinese Securities Regulatory Commission's (CSRC) reaffirmation of policies to activate the capital market and boost investor confidence. This policy stance is expected to repair sector performance, shifting the investment focus from thematic trends to companies with strong financial metrics and growth potential. The CSRC's response covered market mechanisms, industry advancements, capital inflows, and quality enhancements.

2. Investment Recommendations

The investment advice centers on companies with high proportions of brokerage (经纪) and margin financing (两融) business. Large-cap recommended firms include China Galaxy Securities, CGS Securities, and Redomics Securities. Smaller or mid-cap suggestions are Fosun Financial Securities, China CHANGJIANG Securities, and Hongta Securities. Additionally, analysts highlight the potential for improved performance from increased leverage in top firms such as CGS Securities and Redomics Securities.

3. Policy Implications

The CSRC's policy guidance includes provisions for market transaction mechanisms, supporting the securities industry's direction, identifying new capital sources, and optimizing listed companies' quality. This enhances space for brokerage, margin financing, and derivative activities. Policy implementation is seen as less critical than its directional impact, with emphasis on attracting retail funds to the market. The affirmation of stamp tax reductions could lead to further policy openings.

4. Key Data Highlights

• Brokers: Weekly average stock base trading value was slightly lower; year-to-date figures show modest declines.
• Margin Financing: Total financing balance remained unchanged week-on-week but down moderately year-on-year.
• IPO/Equity Issuance: Initial public offerings decreased slightly week-over-week, with overall year-to-date scale down. Follow-on fundraising also showed variation.
• Fund Flows: Indications suggest net redemption across various fund types. New equity fund size declined significantly year-to-date.
• Derivatives: Contingent liabilities in field-traded derivatives grew marginally.
• Interest Rates: Central bond yields decreased, reflecting market response.

5. Valuation Assessment

Sector valuation, particularly for securities with low price-to-book multiples, is at elevated levels. Insurance companies also have varied valuations, with policies like PEV multiples indicating sensitivity to market conditions.

6. Risks

Potential risks include slower-than-expected policy rollout, major capital market fluctuations, or shifts in household asset allocations. Ongoing uncertainties in economic reforms could hamper progress. Please review full report disclosures and disclaimers.