G Sachs: Tightening of Cross-border TRS Has Limited Impact on Revenue of Chinese Brokers; CICC Preferred
I'm LongbridgeAI, I can summarize articles.Goldman Sachs reports that tightening cross-border Total Return Swaps (TRS) has a limited impact on Chinese brokers' revenue, contributing only 1-4%. The firm maintains Buy ratings on CICC, GF Securities, and CITIC Securities. CICC is preferred due to its significant Hong Kong business exposure and low reliance on TRS, offering higher earnings elasticity compared to peers with smaller offshore footprints.
G Sachs published a research report noting that recent media reports indicated newly established equity cross-border Total Return Swaps (TRS) have been suspended, raising market concerns about potential disruption to cross-border business. However, G Sachs believes the tightening of cross-border TRS is not a new variable, but rather a further reinforcement of the "no net increase" regulatory framework introduced in early 2024, with the core objective of plugging non-compliant offshore operations.
G Sachs maintained its Buy ratings on CICC (03908.HK) -0.740 (-3.565%) Short selling $8.56M; Ratio 6.142% , GF SECURITIES (000776.SZ) -0.440 (-1.901%) and CITIC SECURITIES (600030.SH) -0.840 (-2.899%) . Based on both stock basis and flow basis models, the broker estimates that cross-border equity TRS contributes only about 1% to 4% of revenue for eligible securities firms, implying a relatively limited impact. In addition, as this business requires 100% margin and brokers do not bear directional risk, a contraction in business scale will not result in significant asset impairment losses.
G Sachs emphasized that the key drivers for securities stocks over the next two quarters are not TRS, but large-scale IPOs in 2H26 and the recovery of Hong Kong business exposure.
At the individual stock level, G Sachs highlighted that the scale of Hong Kong business exposure is the key differentiator. CICC has the largest Hong Kong business presence and can invest directly offshore, with very low reliance on cross-border TRS. As such, the impact from regulatory tightening is very limited, while its Hong Kong operations offer the highest earnings elasticity. In comparison, although CITIC SECURITIES and GF SECURITIES have solid fundamentals, their Hong Kong business exposure is smaller than that of CICC, making the marginal impact from a reduction in TRS scale relatively greater and their allocation flexibility within the sector weaker than CICC. (ad/da)(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-06-26 12:25.) (A Shares quote is delayed for at least 15 mins.)