Key Takeaways:
- Goldman Sachs maintains Buy on CICC, GF Securities and CITIC Securities
- Cross-border equity TRS contributes only 1% to 4% of broker revenue
- CICC preferred for its large Hong Kong business and direct offshore investment
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Goldman Sachs keeps Buy on 3 Chinese brokers as TRS impact limited
Goldman Sachs said cross-border equity total return swaps contribute just 1 percent to 4 percent of revenue for Chinese brokers, limiting the impact of tighter rules on the sector.
"Cross-border TRS tightening is not a new variable but a reinforcement of the no-net-increase framework from early 2024," Goldman Sachs analysts wrote in a June 26 research note.
The firm maintained Buy ratings on CICC (03908.HK), GF Securities (000776.SZ) and CITIC Securities (600030.SH). The restrictions, which block new positions in cross-border TRS tied to foreign assets, were imposed by at least four state-owned brokerages including China International Capital Corp. The total cross-border OTC derivatives book stood at 825.4 billion yuan ($114.7 billion) as of late November 2023, with CICC among only 10 licensed brokers offering TRS services.
Because the business requires 100 percent margin and brokers bear no directional risk, a contraction in scale will not trigger significant asset impairment losses. Goldman Sachs said the key drivers for securities stocks over the next two quarters are large-scale IPOs in the second half of 2026 and the recovery of Hong Kong business exposure — not TRS.
At the individual stock level, CICC has the largest Hong Kong business presence and can invest directly offshore, giving it very low reliance on cross-border TRS. In comparison, CITIC Securities and GF Securities have smaller Hong Kong exposure, making the marginal impact from a reduction in TRS scale relatively greater and their allocation flexibility within the sector weaker than CICC.
CICC offers the highest earnings elasticity among the three, given its direct offshore investment capability and minimal reliance on cross-border TRS. Investors will watch for IPO pipeline announcements in the coming months as the next catalyst for the sector.
This article is for informational purposes only and does not constitute investment advice.
[1] G Sachs: Tightening of Cross-border TRS Has Limited Impact on Revenue of Chinese Brokers; CICC (03908.HK) Preferred[2] Major Brokerage: Morgan Stanley – Mainland China's tightening of cross-border TRS is likely a risk management measure, with limited impact on leading securities firms. - 富途牛牛[3] Chinese brokerages curb cross-border swaps for domestic funds, sources say - Reuters[4] China International Capital Corp restricts new cross-border swaps as Beijing tightens capital controls - Crypto Briefing
