Subsequently, with the maturity of the futures market, the exchange rebate ratio declined as a general trend, and futures companies that relied too much on traditional brokerage services were likely to be prioritized for clearance.
The Zhitong Finance App learned that China Merchants Securities released a research report saying that at present, the futures industry's development goals are clear, the overall path is clear, and that warm policies continue to care for the market, superimpose the rigid needs of the industry, and jointly support the basic direction of the industry. In the long run, the industry is clearly positioned, the development path is clear, business capabilities are steadily improving, and both supply and demand sides continue to gain strength, and fundamentals are expected to strengthen steadily. However, compared to the securities industry with a similar business model, the futures industry has a stronger asset-light attribute, and overall profit fluctuations are relatively greater. Therefore, compared to the securities industry, valuations should be higher and more flexible. Currently, the futures sector is undervalued, so a positive layout is recommended.
The main views of China Merchants Securities are as follows:
Why is the futures industry recommended at this point?
1) The policy dividend has arrived, and a new cycle is about to begin: “Opinions on Strengthening Supervision and Risk Prevention and Promoting High-Quality Development of the Futures Market” was issued. Its significance for the futures industry is no less significant than the significance of multiple versions of the “National Nine Rules” for the securities industry.
2) Practical experience in promoting “seizing commodity pricing rights” by the “Belt and Road”: The “resource-technical” circular trade between China and countries along the “Belt and Road” determines China's buyer monopoly position in the spot market. Coupled with the promotion of RMB internationalization and the improvement of warehousing/logistics infrastructure along the route, the futures market dominated by China will attract more domestic and foreign investors to enter and increase the global influence of Chinese futures prices.
3) Rigid risk management requirements: In a changing market environment, industrial customers have become the “natural demand side” of futures market transactions. Along with the promotion of portfolio guarantees and the improvement of market maker management rules, the cost of industrial customers participating in hedging will decline, and the penetration rate is expected to further increase.
4) Marginal improvement in industry fundamentals: Commodity futures options continue to be introduced, financial products are introduced or marginally relaxed, and market boundaries are expected to be further extended; commercial banks, medium- and long-term capital, and qualified overseas investors are pouring in to revitalize the market. Resonance support between supply and demand is generally positive.
The domestic futures market is growing rapidly and is structurally differentiated.
After 30 years of development, trading activity in the domestic futures market is significantly better than that of Japan and Europe, and slightly lower than that of the US. In 2023, the futures options trading volume rankings of the Chinese Stock Exchange, Dashang, China Gold Exchange, and CCC all ranked in the top 30 global exchange futures options trading volume. Structurally, it is different from the financial transaction structure in the US and the world. It is influenced by both regulatory orientation and market choices. China's futures market is dominated by commodity and interest rate derivatives, and the development of stock index derivatives is “tepid.”
The futures industry is lightweight, profit fluctuations are high, and concentration is high. With the release of policy dividends and endogenous growth, the overall industry will move towards “small but beautiful”.
Regardless of the size of assets, revenue, and net profit, the characteristics of the “big market and small industry” of futures are obvious, and the revenue and net profit of the futures industry in 2023 is less than that of leading brokerage firm CITIC Securities. In terms of industry structure, the leading effect is obvious and continues to increase. The business structure is mainly based on traditional brokerage business. The single business structure and sufficient market competition make the ROE of the industry lower than the banking and securities industry and fluctuate greatly. As the industry's leverage space opens up, innovative businesses mature, and traditional brokerage becomes the main revenue generator, the industry is expected to move towards “small but beautiful”.
Currently, brokerage business is still the main contributor to industry revenue, and policy is the main variable of profit.
In recent years, brokerage business's share of revenue has stabilized at over 90%. In terms of business scale, traditional industrial risk hedging demand has bottomed out, and policy attitudes also determine the direction of marginal changes in transaction volume and the amount of room for incremental market transactions. Looking at business rates, full market-based competition and the trend of institutionalization/industrialization of investment have weakened the bargaining power of futures companies and driven down commission rates; under the maintenance of easing domestic liquidity, futures margin interest rates are also under pressure. Subsequently, with the maturity of the futures market, the exchange rebate ratio declined as a general trend, and futures companies that relied too much on traditional brokerage services were likely to be prioritized for clearance.
Asset management revenue will be channelized before starting.
After the new asset management regulations, the growth rate of the scale of futures asset management changed. Currently, it is developing steadily, accounting for 2.5% of business revenue. In terms of rates, the general trend of fee reduction and concessions is trending, and management fees are under significant pressure. Most futures asset management revolves around FOF as the main line, developing CTA strategic assets to boost the comprehensive rate of asset management business. In terms of the business pattern, brokerage futures asset management benefits from the parent company's personnel reserves, financial strength, and brand recognition, and the management scale is far ahead.
The risk management business is the fulcrum of industry innovation and transformation, and it is also an important gripper for serving the real economy.
Overall macroeconomic uncertainty is rising, the difficulty and cost of risk hedging has increased, and duct revenue and net profit have fluctuated greatly. See the segments:
1) Domestic base difference trade: The scale growth rate is fast, the coverage is wide, and the efficiency is high. The increase in subsequent business personnel reserves and the improvement of trade supporting facilities will continue to enhance the profitability of base difference trade;
2) OTC derivatives business: Compared with brokerage firms and banks, futures companies are still at a disadvantage in the OTC financial derivatives market. In the future, they may be able to follow a smooth path by focusing on differentiated competition on the commodity derivatives circuit;
3) Market making service: The market making business is growing rapidly, and the problems of uncontinuous active contract months and poor transactions for some types have been effectively solved.
Investment advice: It is recommended to focus on Nanhua Futures (603093.SH), Yongan Futures (600927.SH), Ruida Futures (002961.SZ), etc.
Risk warning: Increased market volatility, changes in regulatory policies, intensification of market intensity, industry innovation and business development falling short of expectations, etc.
