(Bloomberg) — Bets on a merger of China’s two biggest brokerages have helped fueled a sector wide rally that has left the Communist Party-ruled nation with seven of world’s ten biggest securities firms in terms of market value.
Shares of Beijing-based CSC Financial Co. have surged 86% this year, nudging above for the first time its potential suitor, Citic Securities Co., to become China’s largest securities firm by market value this week. Citic has climbed 23%, beating the 9% gain of the Shanghai benchmark.
Planning for a merger between the two has been going on since at least April, with feasibility studies conducted by their largest shareholders on how to structure a deal, Bloomberg reported earlier. The combination would now create a company valued at more than $100 billion, surpassing even Morgan Stanley and Goldman Sachs Group Inc., according to data compiled by Bloomberg.
In a filing to the Shanghai stock exchange on Monday, CSC said the recent rally has pushed the price to book ratio of 9.68 times, higher than the 2.57 industry average. It warned investors of risks and urged them to be rational.
The two lag far behind Wall Street rivals in assets, with CSC at about $41 billion and Citic at about $132 billion. Goldman Sachs had $1.1 trillion in assets at the end of June.
Chinese brokers, a longstanding bellwether of the broad market, have been leading the country’s biggest bull run since 2015 as the economy gets back on its feet after the coronavirus outbreak shut large swaths earlier this year. Trading volume surged, with daily turnover exceeding 1 trillion yuan ($143 billion) for 17 consecutive days.
On the back of the market euphoria, other Chinese brokers including Huatai Securities Co. and Haitong Securities Co., have climbed in the rankings, coming in seventh and eighth after Credit Suisse Group AG.
China has long pushed to engineer a broker that can compete with the likes of Goldman as the country fully open its $47 trillion financial industry to foreign banks this year. Late last year, the China Securities Regulatory Commission said that it wanted to create investment banks of an “aircraft carrier size” to compete with Wall Street, as well as to promote international expansion.
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