(Yicai Global) Jan. 21 -- All of China's 27 main securities companies reported a decline in profit in 2018, according to the South China Morning Post. When figures were combined, a net profit decline of 43% was recorded, with the stock market slump, dwindling trading and a reduction in IPO business being blamed for the poor performance. This news comes as another blow to some of the country's leading securities firms who have recently been scrutinized for their actions and conduct. But what has caused this slump and can things be turned around?
China's crashing stock market
It's no secret that the trade conflict between America and China has put pressure on the country's stock market and economy due to the two nations coming to blows over tariffs and currency. Additionally, companies who have used their shares as collateral on their loans have been forced to sell them when prices have plummeted. Bloomberg reports that a total of 4.18 trillion yuan worth of shares have been used as loan collateral. In turn, this forced selling means even greater losses are made and China's Securities firms' make less of a profit.
The worst casualties
Southeast Securities reported the largest decline in profit in 2018, with profits down by 98% or 13 million yuan. The firm admitted that the market is tough, confessing that "The market situation is grim. "Due to the big change in the capital market environment this year, the domestic stock market has remained weak and trading volumes have shrunk. It has affected our company's net profit." Meanwhile, the three largest securities firms based solely on revenue saw significant profit falls too. Haitong Securities reported a drop of 37%, Guotai Junan Securities followed at 24%, and Citic Securities saw a 12% decline.
An unexpected boost
Despite China's Securities firms encountering a weak 2018, 2019 is already showing promise. Shares in Founder Securities were down for the fourth year in a row at the end of 2018, with the organization hit with a 23% decline. However, less than two weeks into the new year and the Beijing-based company saw shares rocket by an impressive 39%. Stock analysts and industry experts have been unable to determine the reason behind the sudden turnaround. Although, it does appear that investors have become increasingly interested in Founder since an announcement on January 2 was made confirming a 56.6 million yuan share buyback. Within 24 hours of the revelation, trading increased by 700% as savvy individuals saw an opportunity to accumulate more cash with a smaller risk.
Better times ahead
Founder's start to the year shows significant promise, and Analysts are largely optimistic of China's Securities firm's future too. "The stock market has hit its lowest limit and can't possibly go any lower. Trading volumes will bounce back," states China Post Securities analyst, Cheng Yimin. He also believes that the IPO market will be revived if the highly anticipated new technology board launches during the year.
China's Securities firms experienced a poor 2018, with every major player seeing a drop in profits. But, things are looking more promising for 2019 as Founder Securities' shares rise in price and experts predict a turnaround.
[Disclaimer: Yicai Global is committed to providing an open forum to air a diverse range of views. The opinions expressed herein are the author's alone. Yicai Global has redacted this article to conform to our style and usage guidelines, but neither validates its factual nor endorses its editorial content.]