The nation's securities firms are expected to become more profitable this year, bolstered by higher daily turnover on the local bourse and improved stock market sentiment, Fitch Ratings said yesterday.
"The Taiwan Stock Exchange has performed quite strongly so far this year, thanks to strong capital inflow and improved market sentiment over the cross-strait relationship," Fitch Ratings said in a report on Taiwan's securities sector slated to be released today.
Provided current favorable market conditions persist, Taiwanese securities firms can expect a more profitable year this year, the British ratings services provider said.
The TAIEX was up 9.5 percent for the first four months of this year, while the average daily turnover amounted to NT$106.8 billion (US$3.33 billion), up 38 percent from NT$77.2 billion last year, according to Fitch's data.
Last year, the local securities industry registered a weak return on equity of 2.3 percent, down from 5.2 percent in 2004, which resulted from sluggish market turnover, lackluster stock market performance and tough price competition in nearly all capital market segments, Fitch said.
Looking ahead, despite the seeming brighter prospects for this year, the long-term profitability of the sector will largely depend on the pace of market consolidation, which is important for easing severe price competition, it added.
Given the industry's fragmentation, fierce price wars and anemic profitability, consolidation will continue in the next two years, as local securities firms seek to improve their operating efficiency and profitability, Fitch predicted.
In general, the nation's securities companies have strong financials, backed by limited leverage, good liquidity and strong capitalization, Fitch said.
Concerns include the sector's volatile profitability and fierce price competition across all capital market segments and brokerage businesses, as well as limited diversification and operating scale, the ratings firm said.
Fitch said it expected large securities firms and small boutique securities houses to outperform their medium-sized peers, which generally have weaker capitalization and are burdened with high fixed operating costs to maintain retail franchises amid declining retail participation in the market.
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