China Research Pullback Threatens Analyst Jobs as Brokerages Retrench

Chinese brokerage firms face pay cuts, layoffs, and tighter regulations, as the industry grapples with a market slump, reduced trading commissions, and China's 'common prosperity' campaign. Major banks like Morgan Stanley and HSBC are also cutting investment banking jobs in the region.

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Quadri Adejumo
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China Research Pullback Threatens Analyst Jobs as Brokerages Retrench

China Research Pullback Threatens Analyst Jobs as Brokerages Retrench

Chinese brokerage firms are facing a harsh new reality, with analysts confronting pay cuts, stricter performance metrics, and even layoffs. The industry, which employs thousands of people who research and opine about stocks, the economy, and markets, is retrenching after years of expansion. Factors contributing to this include a prolonged market slump reducing trading commissions, authorities tightening limits on what research analysts can publish, and China's stock market rescue measures curtailing short-selling and net sales of shares by proprietary trading desks.

Brokerages are reducing costs by cutting meal and travel budgets, and some have laid off up to 40% of their analysts. The bubble in the research circle is bursting, with senior analysts resigning and compensation packages for star analysts dropping from as high as 10 million yuan to much lower levels. The quality of brokerage research in China has also been diminished by the pressure to bring in commissions, making analysts more like public relations professionals.

Compounding the challenges are China's tighter scrutiny over the financial sector and the 'common prosperity' campaign, which have hit salaries and triggered belt-tightening across the industry. Morgan Stanley is planning to cut around 50 investment-banking jobs in the Asia-Pacific region this week, with at least 80% of the reductions occurring in Hong Kong and China. The planned cuts affect about 13% of the 400 bankers in the region, excluding Japan. More than 40 people in Hong Kong and mainland China are expected to lose their jobs in the coming round.

HSBC is also expected to see around 30 dealmakers depart. The layoffs are among the largest to the two banks' China-focused investment banking teams and follow similar measures by other banks due to a decline in deal-making activities in China amid a slowing economy. This new round of staff cuts that began in late 2023 on the Chinese mainland and Hong Kong, key regional investment banking hubs of western banks, is set to gather pace this year, according to bankers and recruiters.

Why this matters: The job cuts and retrenchment in China's brokerage industry reflect the broader challenges faced by the country's financial sector. The slowdown in deal-making activities and the tightening regulatory environment are putting pressure on firms to reduce costs and adapt to the new reality. The impact on analysts and investment bankers highlights the evolving terrain of China's financial industry and the potential long-term implications for the country's economy.

The job cuts come as weaker deal activities and sluggish markets in China and Hong Kong weigh on the business prospects of these banks. "The final size and timing of the cuts may change," a source familiar with the matter said. The layoffs are part of a broader trend in the industry as firms contend with the changing market conditions and regulatory environment in China.

Key Takeaways

  • Chinese brokerage firms face pay cuts, layoffs, and stricter performance metrics.
  • Factors include market slump, tighter research limits, and stock market rescue measures.
  • Morgan Stanley plans to cut around 50 investment banking jobs in Asia-Pacific, mainly in China.
  • HSBC expects around 30 dealmakers to depart, reflecting broader industry challenges.
  • Job cuts and retrenchment reflect broader challenges in China's financial sector.