China's best 2019 stock is already up 33% and no one knows why

[SHANGHAI] Founder Securities Co shares closed 2018 with their fourth straight annual decline. This year has started differently, with the brokerage seeing the best performance among China's 300 biggest stocks.

Beijing-based Founder has enjoyed a 2019 surge of 34 per cent, including a 1 per cent gain Tuesday morning, after a 23 per cent decline last year as the brokerage industry suffered amid a broader market fall and slowing economy. But while stock analysts can usually explain the reasons behind dramatic price moves, they've been left wondering about what's pushing up the firm's stock.

"There's nothing in Founder's fundamentals that particularly stands out," said Liao Chenkai, a Shanghai-based analyst with Capital Securities Corp.

In a stock exchange statement dated Jan 7, Founder's largest shareholder Peking University Founder Group Corp said there were no major events, including merger and acquisition plans, that needed to be disclosed.

Mr Liao speculated that investors may be attracted to Founder after it announced a 56.6 million yuan (S$11.2 million) share buyback on Jan 2. Trading volume rose more than 700 per cent the next day. He also noted that brokerage stocks have seen a rebound recently: a December drop of 5.8 per cent in the Bloomberg gauge of Chinese securities firms was followed by an 11 per cent gain this month after policymakers repeatedly stressed their support for the economy and financial sector in particular.

China's brokerages, seen as a bellwether for the broader market, are rebounding this year after slumping 31 per cent in 2018. The CSI 300 Index, which fell 25 per cent last year, is up 1.5 per cent in January.

Banny Lam, head of research at CEB International Investment Corp in Hong Kong, wondered if Founder's gains could be related to expectations that Credit Suisse Group AG may buy a controlling stake in their onshore securities joint venture. While there are no signs such a deal is imminent, Chinese authorities have been talking up efforts to open the nation's financial system, and UBS Group AG last month took a controlling stake in its local JV.

Then there's the 2013 acquisition of China Minzu Securities Co by Founder, and the former top spy who was sentenced to life in prison for crimes including providing insider information about the restructuring of the two firms. Ma Jian was pronounced guilty Dec 27, and the next day Founder announced its latest plans to integrate Minzu into its operations.

Founder's proposal to absorb Minzu's 51 securities divisions provided clarity on business lines and cleared up concerns about competition, said Mark Huang, a Hong Kong-based analyst at Bright Smart Securities Co. Investors are also optimistic about consolidation among securities firms in China after Citic Securities Co bought Guangzhou Securities Co in December, he said.

BLOOMBERG