Accelerated capital market reforms have offered great development opportunities for China’s securities industry, with stronger players in it set to benefit more than others, analysts said.

“China has been rolling out policies for capital market reforms since October, aiming to facilitate the move of funds from parties with excess capital to parties needing funds－the core function of securities firms,” said Ma Kunpeng, an industry analyst with mainland-listed SWS Securities.

Securities firms in China mainly conduct investment banking, brokerage, and asset management businesses.

“New policies have ushered the securities industry into a new development era. We expect both their financial show and market performance of the industry to recover in 2019,” Ma said.

China announced the draft design of the science and technology innovation board on Jan 30. The pilot project in capital market reforms is expected to be launched in the April-June period. Regulators also eased trading restrictions on stock index futures in December and pledged to “provide more futures and derivative tools” this year.

Liu Wenqiang, an industry researcher with Great Wall Securities, said the reforms will help securities firms to expand their income resources and improve profitability.

“The new board would boost the industry’s revenue from investment banking, brokerage, and equity investment in non-listed companies. Meanwhile, as more derivatives become accessible, securities firms can develop asset-heavy businesses more efficiently,” Liu said.

“Regulators have also begun to grant the industry more discretion over risk management to foster more capable players.”

Liu’s remarks are based on announcements of the China Securities Regulatory Commission on Jan 31. The CSRC said it plans to remove the minimum requirement of maintenance margins set for the securities firms.

Calculation methods of the firms’ risk control indicators will also be revised, allowing for a higher leverage ratio of the industry, it said.

“If the capital market reforms are properly pushed forward and thus buoy liquidity and performance of the A-share market, stock prices of securities firms will get a major boost this year,” said Zhao Hongmei, deputy head of research at Hong Kong-based Zhongtai Financial International Ltd.

The securities industry had led the recovery of the A-share market this year. As of Feb 22, a sub-index tracking mainland-listed securities firms went up by 36.2 percent, outpacing the 12.4-percent rise of the benchmark Shanghai Composite Index, according to Wind Info.

“Top industry players will benefit more from the reforms than smaller ones, as their stronger capital strength and comprehensive resources will help them better explore the opportunities offered by the reforms,” Zhao said.

Echoing Zhao’s sentiments, Hong Rong, founder of Shanghai-based investor education platform Hongda Education, said as the industry grows stronger with deepened capital market reforms, many smaller players will merge with larger ones in the following years.

“To make capital market reforms succeed and to facilitate financing of new economy enterprises, the securities industry must become stronger, making supportive policies for the industry imperative,” Hong said.

He said he expects to see deregulation of leverage ratio, and encouragement for product innovation as well as mergers and acquisitions within the industry this year. “Helping private capital play a larger role in the industry will count.”

Future growth momentum of China’s securities industry partly lies in wealth management and the combination of investment banking with equity investment, said Chen Fu, who analyzes non-banking financial institutions for Guangdong province-based Guangfa Securities. Services of trading, sales, research and finance relating to fixed income, currencies and commodities, or FICC, also have a significant growth potential, Chen said.

“Currently, FICC business accounts for no more than 5 percent in Chinese securities firms’ profits, far below 40 percent or more of world leading players. This makes profits of Chinese securities firms heavily reliant on the stock markets’ performance,” Chen said.

In 2018, China’s securities industry slackened amid the stock market downturn. According to the Securities Association of China, total revenue of the securities industry last year dropped by 14 percent year-on-year to 266.3 billion yuan ($39.3 billion), while total profits slumped by 41 percent to 66.6 billion yuan.