Capital market reforms are presenting opportunities for Mainland China’s securities industry, with companies that embrace fintech and digitalization best positioned for long-term growth, according to KPMG analysis.
The 15th annual Mainland China Securities Survey analyses the industry based on the 2020 financial statements of 137 securities companies in mainland China. The report highlights the need for the securities industry to “drive transformation by creating a customer-oriented ecosystem with other players in the capital market.” Securities companies should focus on enhancing their wealth management capabilities by engaging in customer value mining, investment research and precision marketing. Meanwhile, achieving effective innovation by combining new technologies with actual business needs is one of the most important strategic issues facing industry participants. In addition, as China pursues a national strategic goal of hitting peak carbon dioxide emissions by 2030 and for carbon neutrality by 2060, environmental, social and governance (ESG) investment is rising up the corporate agenda and will present new opportunities for the securities industry.
Tony Cheung, Head of Financial Services, KPMG China, says: “Fintech and digitalization will be the core drivers of growth for the next strategic cycle. Fintech is transforming securities companies’ business models, business architecture and operating systems. Standardizing data processing and exploiting data to convert it into an asset are becoming best practices for institutions embarking on digital transformation. For securities companies, the key is to use financial technologies that match their actual business needs to fully deliver growth from innovation. In the future, increased digital transformation in the securities industry will lead to greater integration of big data, financial technology and business scenarios.”
According to the report, the securities industry realized operating income of RMB 446.8 billion and net profit of RMB154.9 billion in 2020, representing year-on-year increases of 24 percent and 30 percent, respectively. In terms of income composition, income from all segments achieved growth in 2020. Although the proportion of income accounted for by proprietary trading slipped by 6 percentage points to 33 percent, it remained the largest source of income for the securities industry. Driven by the strong performance of the secondary market, net income from the brokerage segment accounted for 29 percent, up 6 percentage points from 2019. The investment banking sector outperformed in 2020 and its income accounted for 15 percent of the total, representing a growth of 2 percentage points in its share. There was no significant change in asset management income.
The report notes that as demand for financial services has increased due to the growing number of high-net-worth customers, financial institutions are investing in areas such as talent and financial technology to transform the wealth management sector. Bonn Liu, Head of Asset Management, KPMG ASPAC, says: “Brokers are actively transforming in order to stay competitive. Most have launched wealth management platforms to drive business development and established special committees or departments to pool resources together. Against this backdrop, securities companies are directing investment into new business lines to provide high-net-worth individuals with comprehensive one-stop financial services. Technology is proving to be an indispensable factor in these wealth management transformations and we are seeing that a wide spectrum of securities companies are making good progress with this.”
As more international ESG investors increase their presence in China, ESG and responsible investing is becoming increasingly accepted. Thomas Chan, Head of Financial Services Assurance, KPMG China, says: “As China pursues its national strategic goal of hitting peak carbon dioxide emissions by 2030 and for carbon neutrality by 2060, the securities industry is paying increased attention to ESG development. Through green financing, green investment, green research and environmental rights trading, securities companies are providing financial support to sustainable enterprises that are active in clean energy, energy transition, energy-saving and environmental protection. Fund management companies are showing their commitment to sustainable development in China by creating multi-layered ESG products, promoting green investments and most importantly, taking action themselves.”
In 2021, China ushered in the 14th Five-Year Plan period. As one of the most important intermediaries in the capital market, securities companies are certain to benefit from the reforms in capital market policies. At the same time, the industry is expected to support the quality development of the capital market as a whole through its own quality development.
Abby Wang, Head of Asset Management, KPMG China, concludes: “As integral players in the financial markets, securities companies are embarking on an innovative and transformational journey that will be filled with both opportunities and challenges, and they have shown both vitality and creativity.”
Going forward, the report recommends that industry participants should focus their efforts on the following three areas:
Professionalization: The securities industry should maintain a professional mindset. Moreover, it should accelerate its transformation and stay competitive by enhancing its core capabilities in sponsoring, pricing and underwriting.
Steady development: Following a period of major changes that have rarely been seen over the last century, the industry as a whole should focus on stability and compliance, as well as strengthen internal control and risk management. These will help lay a solid foundation for sustainable development.
Intelligent innovation: The industry is embracing digital transformation, and intelligent middle platforms and ecosystem development are also high on companies’ agendas. Securities companies should focus their innovation efforts on smart investment research, smart investment advisory and smart risk control.
Download the 15th Mainland China Securities Survey here: https://tinyurl.com/kpmg-cn-ss2021
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