How much support will the new round of the swap facility provide?

  • The People's Bank of China plans to conduct the third round of its securities, funds and insurance companies swap facility operation on 3 November. Morgan Stanley expects the round could exceed 100 billion yuan; the tool essentially provides funding support for the relevant institutions to buy stocks and ETFs.
  • The bank noted that the overall quota for the market support tool was 800 billion yuan, of which 210 billion yuan had been used as of June 2026. At that point, the unused quota was 590 billion yuan.
  • Morgan Stanley estimates that approximately 300 billion yuan flowed into ETFs during the month of the report date, potentially from sovereign institutions; it views the new round of swaps as a measure to provide further support for the market and sentiment.

Why do brokerage stocks benefit first?

  • Expectations of liquidity support have been reflected in share prices: on 2 November, the H-shares of China International Capital Corporation and GF Securities rose 8.9% and 8%, respectively, while the Hang Seng Index rose 0.4% over the same period. Morgan Stanley believes brokerages benefit from improving market sentiment and expectations of liquidity support.
  • The bank expects brokerage stocks to continue their short-term rebound on the market support theme following the recent pullback in valuations. According to its report, China International Capital Corporation's H-shares trade at a pro forma forecast price-to-book ratio for 2026 of less than 0.6 times, while GF Securities' H-shares and A-shares trade at 0.6 times and 0.8 times, respectively.
  • On the operating front, Morgan Stanley believes brokerages' earnings trends in the third quarter of 2026 are resilient, with market share in wealth management, asset management and investment banking continuing to concentrate among leading firms.

How will buying stocks affect brokerage profits?

  • Morgan Stanley estimates that, over a longer holding period, the impact on brokerages' own earnings of buying stocks through the swap facility will be neutral to slightly positive.
  • The bank noted that brokerages also participated in swap-facility purchases of stocks and ETFs at the end of 2024 and the beginning of 2025, and believes they achieved good returns. New holdings are typically recorded in the other comprehensive income account, which can reduce the impact of mark-to-market fluctuations on current-period profit or loss, while dividends are included in earnings.
  • The optimistic view of the sector remains subject to operating conditions: downside factors listed by Morgan Stanley include a slower-than-expected economic recovery, a further cooling in average daily market turnover, and a slower-than-expected recovery in GF Securities' investment banking business.