Citic Securities, Banks See Brief Uptick 中信证券和银行业的“昙花一现”
Stock markets are often said to be leading indicators of things to come, a factor that could explain why top Chinese brokerage Citic Securities (HKEx: 6030) has just posted relatively strong financial results in the first half of the year despite a rapidly weakening stock market. The newly released report from Citic Securities shows the company’s profit attributable to owners of its parent fell 24.5 percent in the first half of 2012, while its earnings per share fell more sharply by 33 percent. (HKEx announcement) While neither of those numbers sounds very impressive, both are an improvement over the company’s 36 percent drop in first-quarter profit, indicating that its situation may be stabilizing after a weak stock market performance hit its results in 2011.
But a quick look at this year’s stock market could indicate the second-quarter uptick may only be temporary, meaning Citic Securities and its peers like Haitong Securities (HKEx: 6837; Shanghai: 600837) are in for more rough times ahead. After posting one of the world’s worst performances in 2011, the benchmark Shanghai index rebounded and climbed 3 percent in the first quarter, luring many investors back to the market. Momentum from that uptick is probably a major factor behind Citic Securities’ apparent stabilization in the second quarter.
But after the first-quarter uptick, the stock market resumed its downward track, falling 1.7 percent in the second quarter. The index has fallen another 1.8 percent in the third quarter so far, wiping out all of this year’s gains as investors flee the market due to concerns about China’s slowing economy. With this new downtick showing no signs of easing, look for Citic Securities’ bottom line to start eroding again as investors start to return to the sidelines, depriving it of the trading commissions that make up a big portion of its revenue.
In related news with somewhat similar implications, Chinese media are also reporting the nation’s top 4 banks posted unusually strong July lending, which doubled in the first half of the month from the same levels in June. (English article) That July surge came after the big 4 banks saw their lending decline in June, even as lending for the broader industry reached a 3 month high.
In this case the July uptick may be partly due to increased lending for stock purchases; but probably the bigger factors lie in lending upticks for real estate purchasing and to local governments, amid some early signs that situations may be improving in both sectors. But the latest trends and comments from Beijing indicate the central government is determined to cool the real estate market and tackle heavy debt accumulated by local governments.
That means the uptick in bank lending, similar to the earlier jump in stock buying, is probably temporary and likely to fizzle by the end of the current quarter. Accordingly, look for the big banks to join Citic Securities in returning to overall negative trends for their business in the next 2 months, even if the deteriorating situations don’t appear in their financial results until the end of the year.
Bottom line: New data from Citic Securities and China’s banks show the financial services sector is still enjoying benefits of a recent uptick, though previous negative trends should resume by year end.
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