Key investment points
Dragged down by the weak equity market, the investment income of 22q1 securities companies fell sharply. The financial statements of CITIC and CICC, which transformed into neutral derivatives business earlier, were significantly better than those of their peers, making the market pay more attention to this kind of business. According to the type of business, we divide the mainstream stock derivatives of current securities companies into snowball products and equity return swaps. Subject to the complexity of this kind of business and the limitation of disclosure, the past market has less analysis on its practical progress in the case of large market fluctuations. We discuss it here for your reference
At present, securities companies issue a large number of new snowballs and knock in old products for hedging:
1. The essence of snowball products is that investors sell a put option with strange structure to securities companies. The market environment with large upward fluctuation in 19-21 years makes market participants win-win. Investors obtain high annualized coupon, improve the efficiency of capital use of securities companies, and earn positive hedging income. According to the data of securities Industry Association, the survival scale of snowball was about 150 billion yuan by the end of February 22, mainly products linked to 500 index, The entry points are scattered and the market risk is controllable;
2. After the second quarter of 2012, some snowballs entered the knock in state, and the delta faced by securities companies remained negative, but the gamma symbol changed from positive to negative, which means that with the decline of stock price, delta increases, that is, the absolute value of delta decreases, so it is necessary to sell stocks, and the hedging method has changed to chasing up and killing down. At the same time, most securities companies use stock index futures for delta hedging. Under the condition of negative basis, Chasing up and killing down means buying when the discount is shallow and selling when the discount is deep, which increases the hedging loss;
3. Due to the lack of sufficient floor option products, securities companies have some high-level risk exposures such as Vega. At present, when the snowball is close to the strike point, many securities companies are forced to choose new snowballs to hedge the high-level letter exposure: Taking Vega as an example, if the Vega absolute value of the new snowball product can exceed the snowball Vega value in the strike state, the total exposure of securities companies Vega will become positive and the negative losses caused by recent large fluctuations will also be reduced; Therefore, the recent large-scale issuance of new snowball products is not driven by investor demand, but from the purpose of securities companies to hedge against old products;
The income swap with quantitative private placement as the main body goes through two stages: active and passive deleveraging:
1. Before Q4 of the 21st century, benefiting from high excess returns, the AB income swap business of quantitative private placement and securities companies became the mainstream, which is reflected in the significant increase in the scale of financial products in trading financial instruments in the balance sheets of leading securities companies. The stock selection of quantitative private placement is highly dispersed, the weight of a single equity is very low, and the risk control requirements of securities companies are very high, so the quantitative strategy needs to be adjusted as much as possible, and it is generally agreed that the insurance should be recovered when the net value of model a products decreases by 5%. Therefore, compared with the capital allocation business of 15-16 years, the risk of private placement fund model AB is greatly reduced;
2. Active deleveraging: with the rise of the transaction cost of large-scale private placement and the change of the effective factors of the market itself, most quantitative private placement have retreated greatly since September 21. After deducting the discount and financing cost of stock index futures, the excess return turns negative. In this case, private placement will make it lose the motivation to cooperate with securities companies and exchange earnings, so as to “actively reduce leverage”;
3. Passive deleveraging: in December 22, the measures for the administration of income swap business of securities companies of the association stipulated that income swap business should not be linked to private equity funds and other products, so the original AB business has been greatly restricted; At present, mainstream securities companies begin to operate by using the direct connection of proprietary system (instead of setting up asset management products in the past and trusteeship in the trading seat of securities companies for independent trading). Due to the fact that all the rights and interests of customers and derivatives positions are included in the risk control indicators of securities companies in this way, the upper limit of scale is small and consumes large liquidity and capital of securities companies. CICC has increased its holdings of monetary funds in 21 years to support the development of derivatives; In addition, the new mode of using self operated system to carry out business has high requirements on the system, risk control and compliance of securities companies. At present, Huatai is in a leading position.
Although in the weak market, the expansion speed of securities companies will slow down and occupy the capital and liquidity indicators, compared with the traditional directional proprietary trading, the equity derivatives business still has its unique advantages:
1. As most derivatives businesses are in the form of financial products, and financial products have their contract duration, although the market demand has slowed down this year, we expect that the stock business can still contribute a large absolute income to the company;
2. Although the high-order letter has certain exposure, it still has the characteristics of “non directionality”, and the sensitivity of income direction to the market is much lower than that of traditional proprietary business: as shown in Figure 13, under the condition of one-way decline in the market in 18 years, the decline rate of equity investment income of CICC is only 33%, and the yield is still positive 3.03%;
3. Referring to 18 years of experience and combined with this year’s business trend, we expect that the investment income of leading securities companies in the development of derivatives business this year can still reach about 70% of that of last year;
Investment suggestion: we recommend Citic Securities Company Limited(600030) and CICC H: 1) Citic Securities Company Limited(600030) : the company’s 22q1 investment income only decreased by 13.2% year-on-year, and its net profit increased by 1.24% against the trend. We believe that the strong performance in the first quarter is highly related to the rational layout of its investment business. The derivatives business with small exposure still contributed to the positive investment income. CITIC completed a 28 billion share allotment in January 22, Eliminate the market’s concern about its refinancing and amortization of EPS in a short time. At present, its share price corresponds to 1.15 times of Pb in 22 years, which is at the bottom of history and even lower than the valuation in the period with stock pledge risk in 18 years; 2 China International Capital Corporation Limited(601995) H； China International Capital Corporation Limited(601995) operating leverage ratio ranks first among Chinese securities companies all year round. Its roe is in a leading position in the industry due to its efficient capital use efficiency and strong investment banking ability. The company has established a non directional capital intermediary business development strategy since 15 years, and its performance has been verified in several rounds of bull and bear market conversion. At present, the Pb corresponding to its share price is 0.63 times
Risk warning: the reform of capital market is slower than expected, the equity market has fallen sharply, the progress of investment banking is less than expected, the company’s derivatives hedging is insufficient, and the supervision of derivatives continues to be stricter;
