New | China brokerages look like good bets amid mounting signs that mainland shares have stabilised, analysts say

It’s been a choppy year for China’s stock market, and for the stock brokers, whose fortunes rise and fall with the equities tide, not to mention the shifting policy backdrop that seems to wobble according to the whims of authorities.

China’s securities brokerages, operating in a highly competitive environment, earned handsome profits in the bull market that began late last year, thanks to commission fees and interest income on margin financing.

The top 50 brokers each put 20 per cent of their net assets into the government-mandated market stability fund. Total contribution was estimated at 200 billion yuan (HK$242.6 billion), although that figure was never validated by the authorities, nor has there been a detailed disclosure of where the money has been invested or how well its has performed.

These are among the reasons that brokerages’ share prices are lagging even as China stocks have staged an impressive rally. The Shanghai Composite Index has gained more than 25 per cent from its trough in late August.

“In short, this is not a sector that will cure investors’ insomnia,” said Macquarie analysts Matthew Smith and Steve Zeng.