China brokerage stocks weakest in a decade

A Bloomberg gauge tracking the performance of China-listed brokerages has fallen to its lowest reading relative to the Shanghai Composite Index in over a decade, despite the recent plummet of Chinese equities.

Brokerages trade at 13.3 times 12-month forward earnings, compared with 10.6 times for the Shanghai average, according to the gauge. China International Capital Corp estimates that brokerage profits dropped 17% in the first half of the year relative to a year earlier.

“Neither the brokerage nor investment banking segments provide any bright spots,” said Liao Chenkai of Capital Securities Corp. “It will be difficult for brokerage shares to emerge from the doldrums under such circumstances, unless the stock market picks up.”

China’s equity market is down around 20% from its January high, and 30-day average trading turnover has fallen to a 4-year low. Markets had a short respite last week on the news of government measures to help ease looming economic threats from deleveraging and the US, but have continued to slide since.