Goldman Sachs, one of the first foreign investment banks to set up in China, has entered the country’s futures market after a slow year for its securities brokerage business.
Beijing Gao Hua Securities, Goldman’s China operation, said last night that it had bought a Shenzhen-based futures brokerage company, Qian Kun Futures.
The bank didn’t disclose the size of the transaction, but the deal “marks a continued expansion of Gao Hua’s product platform” , said Xing Zhang, chief executive officer of Gao Hua. “We are committed to continue investing in our business and in China’s financial markets.”
Goldman has been looking for a futures partner for some time and believes Qian Kun is an ideal candidate. The firm is a member of the China Financial Futures Exchange and China’s three commodities exchanges in Dalian, Shanghai and Zhengzhou.
The Shenzhen-based firm will be incorporated as Gao Hua’s fully owned subsidiary but retain its name. Wilfred Yiu, deputy chief executive officer and chief operating officer of Gao Hua will become chairman of Qian Kun.
“This is an important step in the build-out of our platform and adds capability that our clients want from us,” Yiu said in a statement.
Goldman is the second foreign bank to enter China’s futures market, after J.P. Morgan formed a joint venture with Zhongshan Futures Brokerage in December 2007. The JV was renamed J.P. Morgan Futures and has membership with three Chinese commodity exchanges: Dalian, Zhengzhou and the Shanghai Futures Exchange.
This has been a weak year in the A-share underwriting businesses. So far, there have been 155 IPOs, generating Rmb5.43 billion ($872 million) in underwriting fees — split by 41 brokerage firms, according to Wind, a statistics provider. Gao Hua and 35 other brokers haven’t made any money from IPO fees in China.
There haven’t been any IPOs for almost two months, and the total amount of money raised this year is just Rmb100 billion — roughly a third of last year’s total, according to data from Haitong Securities.
“We expect the money raised in the IPO market for the full year 2012 to stand around Rmb105 billion, representing a 61% year-on-year shrink,” said Fanny Chan, an analyst at Haitong. “Underwriting revenue for securities firms in 2012 is expected to decrease by 38.7%.”
China’s main stock benchmark, the Shanghai Composite Index, is poised to become one of the worst performers for the third consecutive year. As of yesterday, the index has fallen more than 10.3% this year to 1,973, below the psychologically significant 2,000 level.
However, the industry shows signs of booming, having generated Rmb13.5 billion in revenue last year. China’s three commodity futures exchanges rank within the global top 15 by trading volume, and the volume of CSI 300 futures traded on China Financial Futures Exchange has been growing at an annual rate of 26%, according to Goldman.