KPMG Launches the 13th annual Mainland China Securities Survey

Mainland Chinese securities companies are exploring differentiated strategies to stand out from competition; Faster pace capital market reform to create opportunities for the sector, finds KPMG annual survey
2019-09-04 16:11 1419

HONG KONG, Sept. 4, 2019 /PRNewswire/ -- Securities companies are exploring differentiated strategies to move away from homogeneous products and services to find a way forward, while the capital market continues to reform and open up at a faster pace, according to KPMG.

In its 13th annual Mainland China Securities Survey prepared based on the 2018 financial statements of 131 securities companies in mainland China released by the Securities Association of China (SAC), KPMG notes the securities industry recorded RMB 263.3 billion in operating income and 62.4 billion in net profit in 2018, a decrease of 16% and 44% year-on-year respectively. Operating revenue from various business lines declined in varying degrees, while the overall income composition remained in line with the previous year. The proprietary trading segment, which constituted 33% of the industry's total operating income, remained the most significant source of income. Income contribution from brokerage and investment banking operations continued to decline to 26% and 14% respectively. Asset management and financing business saw relatively stable performance.

Bonn Liu, Head of Asset Management, ASPAC, KPMG China, says: "As the capital market is reforming and opening up at a faster pace, and technology is playing a more important role, the securities industry will emerge stronger. However, if securities companies continue to compete with homogeneous products and services, they will find the way forward increasingly difficult. Securities companies have an urgent need to transform themselves."

Throughout 2018, securities companies continued to explore ways to transform and set themselves apart from the competition. Supported by fintech, retail business lines have gradually transformed their wealth management arms by revamping their organisational structures. At the same time, prime brokerage businesses have developed rapidly as institutional investors play a greater role, while proprietary trading business has gradually increased "non-directional" investing. Additionally, as the quality of active management improves, the asset management industry has seen the portion of assets under active management rise. The industry is also increasing investment in technology to drive its digital transformation.

In 2019, the regulators have continued to implement various measures designed to promote the opening up of China's financial services industry through their distinct regulatory frameworks. Notably, the launch of the Sci-Tech Innovation Board (STAR Market) constitutes a major reform in the capital markets. The STAR Market represents an incremental market reform that opens up new possibilities for investment banking, asset management, margin financing and securities lending. The report suggests that securities companies should improve their capabilities in the areas of industry research, valuation, project screening, risk control, quality review and distribution in order to seize the new opportunities offered by the STAR Market and gain an edge over their competition.

In 2019, actions are also being taken to further open up the securities sector. Foreign banks have received approval to establish securities companies in which they are allowed to hold controlling stakes.

Tony Cheung, Partner-in-charge of Financial Services Advisory, KPMG China, says: "The financial sector's two-way opening up process has fostered increased interaction and communication between foreign and domestic players, and has also resulted in an intensified and more complex competitive landscape. Ongoing changes in the industry present a prime opportunity for securities companies to reshape the industrial landscape, implement transformation strategies and develop unique advantages to distinguish themselves from the competition."

Vivian Chui, Head of Securities & Asset Management (Hong Kong), KPMG China, says: "Through international competition and with knowledge gathered from local and international experience, local brokerages can improve their business and operating model and contribute to the development of globalisation. The process of opening up will also push regulators and the industry in general to improve regulatory and risk control mechanisms. These developments will pave the way to create an open and fair market environment."

Capital market reform will be comprehensively deepened in 2019. With the implementation of the pilot registration-based system and the establishment of the STAR Market, more quality companies with advanced technologies will be listed, which will add vitality to the capital markets. Sub-par companies will be excluded from the capital markets at a faster pace under the more rigorous delisting regime. Securities companies can put themselves in a stronger position to serve the real economy and gain a competitive edge by strengthening collaboration between business lines and enhancing their capabilities.

Abby Wang, Head of China Asset Management, KPMG China, concludes: "The securities industry is facing a historic opportunity from the deepening reform of the capital markets and numerous macroeconomic challenges at the same time. The industry needs to focus on developing core business capabilities, accelerating digital empowerment, building an agile organizational system, optimizing talent structure, and enhancing global competitiveness, which will support and drive the capital markets and the real economy towards high-quality development."

About KPMG China

KPMG China is based in 23 offices across 21 cities with around 12,000 partners and staff in Beijing, Changsha, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Haikou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Wuhan, Xiamen, Xi'an, Zhengzhou, Hong Kong SAR and Macau SAR. Working collaboratively across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG 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 firm can trace its origins to 1945. This early commitment to this market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in KPMG's appointment for multidisciplinary services (including audit, tax and advisory) by some of China's most prestigious companies.

Source: KPMG