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HSBC Mulls Raising Stake in China Securities Joint Venture

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Almost a week after getting the regulatory nod to acquire full ownership of its China life insurance joint venture (JV), HSBC Holdings (HSBC - Free Report) is now planning to increase its stake in the securities JV – HSBC Qianhai Securities Limited– in the country.

Per a filing with Shenzhen United Property and Equity Exchange, HSBC’s securities JV partner Qianhai Financial Holdings Co., Ltd. (currently holding 49% stake) is selling its 39% interest in the venture for 1.26 billion yuan ($198 million). HSBC is expected to bid for the stake, which will take its hold in the JV, which was formed in 2017, to 90%.

The filing further stated that the auction for the stake will end on Jan 21. It is worth mentioning that the JV had incurred a loss of 135 million yuan ($21.2 million) last year.

HSBC Qianhai Securities is the first majority-owned JV securities company by a foreign bank in China.

Conclusion

Given that China’s $53-trillion financial market is now open to foreign firms, following the removal of ownership restrictions in 2018, several global banks have been rushing to capitalize on the lucrative prospect. The country has become the second-largest equity market globally, and is one of the broadest and deepest growth markets outside the United States.

This led several banks like Morgan Stanley (MS - Free Report) , JPMorgan (JPM - Free Report) and Goldman Sachs (GS - Free Report) to expand their operations in China. At present, eight global banks, including JPMorgan, Morgan Stanley and Goldman, either have approval for 100% ownership of their local securities venture or obtained a majority stake in their JVs.

Morgan Stanley is set to attain almost full ownership of its Chinese securities JV — Morgan Stanley Securities China Co Ltd, per a stock exchange filing last month. The company will increase its stake in the JV to 94% after its partner — China Fortune Securities Co. Ltd — put 4.06% interest for sale. The company will pay 698 million yuan ($110 million) for the stake.

Notably, JPMorgan and Goldman had received approvals to own 100% of their onshore securities JVs August 2021 and October 2021, respectively. Along with HSBC, the above-mentioned three firms — GS, MS and JPM — have plans to expand further in the country to diversify revenues, and expand their global footprint and market share.

HSBC has been focusing specially on building operations in Asia, including Hong Kong and China. The company has been undertaking efforts to position itself as a top bank for high net worth and ultra-high net worth clients in Asia. Thus, it agreed to acquire L&T Investment Management Limited for $425 million and 100% of the issued share capital of AXA Insurance in Singapore for $575 million. In 2020, the company initiated a digital-first, hybrid financial management platform — HSBC Pinnacle — in mainland China to bank on the increasing wealth in the region.

Shares of HSBC have gained 9.6% over the past six months, compared with the industry’s rise of 1.2%.
 

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Currently, HSBC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.