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China investors piling into brokerages following equity rout

Shanghai

CHINA'S stock investors are piling into the country's brokerages, made cheap by the worst equity rout in a decade.

Half of the 10 best performers on the CSI 300 Index this year are securities firms. The five-day advance by top gainer Founder Securities Co handed investors US$2.5 billion in market value and left analysts bewildered. The rally has room to continue: a Bloomberg gauge of China-listed brokerages is trading at 1.3 times net asset value, off October's 0.96 record low but far below its 10-year average of 2.9.

The sector, a key indicator of sentiment in one of the world's biggest stock markets, is benefiting from speculation that authorities will do more to support growth. There's also optimism that the planned rollout of a new trading venue for high-tech stocks will help China wrest initial public offerings from Hong Kong or New York.

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"People believe policy makers will step up efforts in the new year to avoid the mess the stock market was in, so more policies can be expected to stimulate the market," said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management Co. "A better year for stocks will also mean stronger results for brokers."

The surge is a reprieve after four straight years of declines for the sector. The Bloomberg gauge of brokerages has gained 12 per cent in 2019 compared with 2 per cent for the Shanghai Composite Index as of Wednesday. Securities firms took a beating last year over concern about their business outlook as stock volume dwindled.

The sector's reliance on market sentiment is its biggest weakness. Li Bin, a Shanghai-based fund manager at Capital Corise Asset Management Co, said he would need much more evidence of a rebound. "I wouldn't engage in trading of broker shares at this point. It won't last long," he said. "A turnaround in their businesses will only happen if we see a bull market."

A bull market may be far away as trade tensions with the US hurt economic growth and heightened financial scrutiny eats into company profits. Chinese stocks entered bear market territory in 2018.

A sustainable rebound may happen when China begins operating its so-called high-tech stocks board, according to Kaiyuan Securities Co and Capital Securities Corp. Plans for the venue, unveiled by President Xi Jinping in November, include making it easier for technology firms to access funding.

"China's been preparing intensely for the start of the board on all fronts, and it's something it must succeed on," said Yang Hai, an analyst with Kaiyuan. "New listings on the tech board will benefit brokers' investment banking business materially." BLOOMBERG