China brokerage stocks accelerated their decline in the morning, and Morgan Stanley said the market has already reflected most of the optimism, and the downward pressure on profit forecasts still exists

China brokerage stocks accelerated their decline in the morning, with China Merchants Securities (06099) down 5.65% to HK$12.68; Orient Securities (03958) down 3.11% to HK$4.98; China Securities (06066) down 2.87% to HK$9.15; Everbright Securities (06178) down 2.55% to HK$7.65.

On the news front, Morgan Stanley published a research report saying that Chinese brokerage stocks were significantly re-rated to a more normal valuation, mainly supported by policy, and expected to see more opportunities but expect the volatility of the sector to increase. The bank raised its daily trading volume forecast for A shares in 2025 and 2026 by 3% and 5% to Rmb910bn and Rmb995bn respectively, believing the market has reflected most of the optimism and the profit forecast still faces downward pressure, and expects policy to still provide downward protection for market sentiment and liquidity, so it raised the average profit forecast of the covered Chinese brokerage stocks by about 6%, but expects stock trading activity to retreat from the level last month.

Morgan Stanley raised the target price of mainland brokerage stocks but downgraded the rating of CITIC Securities H shares to "in line with the market", as the current valuation is equivalent to one times the forecast future book value already reflects its strong return on equity. The bank also downgraded China Merchants Securities to "sell", as its profit forecast for next year is 15% lower than the market's peers, believing the market may underestimate its market share loss in brokerage and overestimate its investment income.