The earning prospects for the nation’s securities sector will continue to be constrained and volatile this year, despite many companies reporting profits in the second half of last year, Taiwan Ratings Corp (中華信評) said yesterday.
“The industry’s annualized return on average assets increased to 4.80 percent in the second half of 2009, allowing local securities firms to make a full turnaround from their losses in 2008,” Taiwan Ratings credit analyst Yu Han-lan (藍于涵), said in a statement. Taiwan Ratings is a local arm of Standard & Poor’s Ratings Services.
“But this was mostly due to the bullish local stock market in the second half of 2009 rather than structural improvements by leading players,” she said.
The end of the recession and a warmer relationship with China helped the local bourse rise by 15 percent in the second half of last year. But Taiwan Ratings warned securities firms against complacency as domestic competition remains strong and government regulations are still tight.
This year, the TAIEX index has dropped 0.81 percent, while Yuanta Financial Holdings Co (元大金控), which owns the nation’s largest securities firm, Yuanta Securities Corp (元大證券), has seen its share price drop 16.38 percent over the same period, Taiwan Stock Exchange data showed.
Shares in smaller rivals such as Polaris Securities Co’s (寶來證券) and Capital Securities Co (群益證券) have also declined by 12.86 percent and 15.4 percent respectively.
Lan said business diversification should help securities firms boost profitability and improve their credit profiles.
“Local securities firms are looking for ways to widen their business activities and reduce their reliance on volatile trading business … however, they face intense competition and strict government regulations that limit the scope of business activities such as wealth management,” she said in the statement.
The ratings agency maintained that adequate capitalization in the industry should ensure major players are protected from market volatility and therefore support their credit profiles this year.
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