• What a dramatic fall the Hang Seng Index suffered over the last 2 days. On Tuesday, it plummeted nearly 10% in its worst single-day performance since the 2008 financial crisis. Then yesterday, it fell by 1.4%. • The sharp drops were attributed to investor disappointment over the lack of new stimulus measures from Chinese officials and profit-taking after a recent robust rally. • There was significant trading activity, of course, and that's good news for stock brokerages. That's why their stocks may make a good play on the market in turbulent times. • DBS Research's report yesterday said: "Brokers are typically front-runners during bull markets and heavily speculated by market participants." The report recommended a "buy" on the following HK- and US-listed stocks with exposure to the Chinese investor (chart):  • See excerpts of DBS's take below ... |
Excerpts from DBS Research report
Analysts: Ken Shih & Edmond Fok
• Revised up FY24F-26F earnings by 5%-104% on higher ADT (average daily trading) assumptions; our blue sky scenario suggests further 30% earnings upside |
•Strong retail investing momentum set to last. Compared to Jul 23, we see
| (1) a more concerted effort in the form of supportive policies for the economy & capital market; (2) retail investing confidence restored; (3) foreign capital are coming back to HK/China especially valuations in the US and other key markets are relatively high; and (4) better market liquidity with the rate cuts. |
With social media magnifying the FOMO sentiment, we expect momentum rather than mean reversion.
We estimate >Rmb4tn (5% of A-share free float) of potential new funds flowing into stock market via public funds, due to wealth re-allocation from cash and fixed income to equities.
Earnings outlook substantially improved. We forecast A-share ADT from now to FY25F of Rmb1.25tn, assuming a further 10% growth in the average market cap and turnover rate of 1.5%, slightly higher than the 10-year average (1.42%).
Our blue sky scenario assumes a turnover rate of 2.0% (FY15: 2.5%), suggesting a further 30% earnings upside and showcasing brokers’ high earnings elasticity.
Online brokers like Futu and Up Fintech are key beneficiaries too, as c.80% of their client trading volume comes from HK/China clients, per our estimate.
| Buy on pullback to tap on market momentum. History suggests China brokers typically are front-runners and outperformers during early stage of bull market. Attractive entry opportunity re-emerged as valuation returned to near mean level after 20-30% correction in China brokers’ Hshares. We like CITICS and CICC, as both are
Among online brokers, we like Futu for its stronger market share position in HK. |
Full report here.
