By Cathy Chan Jan. 8 (Bloomberg) — Beijing Gao Hua Securities Co., Goldman Sachs Group Inc. ’s partner in China, plans to start brokerage services for individual investors as early as this year, said two people with knowledge of the matter. Gao Hua, created in 2004 with funding from Goldman Sachs, is adding outlets in Guangzhou, Shenzhen, Nanjing and Chongqing that will serve retail customers, said the people, declining to be identified as the plan is confidential. Gao Hua and New York- based Goldman Sachs operate a local investment banking venture. Goldman Sachs, which controls Gao Hua through the loan, may gain a head start over rival UBS Securities Co. as more of China’s 25.3 trillion yuan ($3.7 trillion) of household savings flow into the stock market. The plan would pit the firm against the likes of China Galaxy Securities Co., the country’s largest retail brokerage by revenue, which has more than 200 outlets. “Retail trading is still a very crucial revenue stream for securities companies in China, though the focus will gradually shift to institutional when the market becomes more mature,” CG Wu , China chairman at CLSA Asia-Pacific Markets, said in an interview. “It would be a tough fight for Goldman to compete with the local houses, because they have much fewer outlets and their cost base is higher.” CLSA Asia-Pacific Markets , the regional broking arm of Credit Agricole SA, received approval in June 2008 to trade yuan-denominated shares for institutional investors after operating in the country for five years. It doesn’t have a retail brokerage license. Asset Management Beijing-based Gao Hua also plans to start an asset management business this year after receiving a license from regulators in 2009, the people said. The company will use the new retail outlets to expand its wealth management operations in China, they said. Outside China, Goldman Sachs has predominantly shunned brokerage for individuals, focusing instead on serving institutional investors and trading with its own money. Almost 18 million brokerage and mutual fund accounts were opened in China in the first 11 months of 2009, according to the nation’s biggest clearing house. That brought the total to 168 million, equivalent to more than half the U.S. population. Retail investors accounted for 99.6 percent of accounts opened for trading on Shanghai’s stock exchange in last year’s first 11 months, according to China Securities Depository and Clearing Corp. Prepare for Rally China’s CSI 300 Index rallied 97 percent last year and the Hang Seng China Enterprises Index, tracking so-called H shares of Chinese companies listed in Hong Kong, rose 62 percent. Investors should be positioned for a rally in China stocks in the first quarter, driven by favorable policies and liquidity, Goldman Sachs said in a research note this week. UBS AG got regulatory approval to form a brokerage and investment banking venture with Beijing Securities Co. in December 2006. The Zurich-based bank owns 20 percent of the venture, called UBS Securities. Like Gao Hua, UBS Securities offers brokerage services for institutions in China. Goldman Sachs Gao Hua Securities Co., the U.S. firm’s venture with Gao Hua, only has a license to underwrite stock and bond sales. Goldman Sachs owns 33 percent of the venture. Angela Yu , a spokeswoman at Goldman Gao Hua Securities, declined to comment. UBS Securities ranked ninth in advising on share sales in mainland China last year, working on 6.3 billion yuan of deals, according to Bloomberg data. Goldman Gao Hua was No. 11 with 5.6 billion yuan. UBS Securities also led Goldman Gao Hua in underwriting in the previous two years, Bloomberg data show. Deutsche Bank AG and Credit Suisse Group AG, which last year won licenses to underwrite share and bond sales, don’t have permits to trade shares on the mainland. Bank of America Corp. , JPMorgan Chase & Co. and Citigroup Inc. have yet to find venture partners in China. To contact the reporter on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net .
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Goldman’s China Partner Said to Plan Mainland Brokerage for Retail Clients
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