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(Bloomberg) -- Daiwa Securities Group Inc. may need more time to achieve profit in China, according to the head of Japan’s second biggest brokerage, reflecting how investment banks continue to struggle on the mainland.
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“It’s a bit questionable whether we will be able to make a profit in 2025,” Chief Executive Officer Akihiko Ogino said in an interview, tempering the firm’s earlier optimism that it might be able to turn around its joint venture brokerage in China as soon as next year. “The reality is that the pace of the Chinese market over the past year hasn’t been as good as expected.”
Dealmakers in China are fighting to stay relevant amid deep pay cuts and widening regulatory probes that have sent chills through a once-vibrant industry. The combined revenue of the country’s securities firms fell 9% to 203.3 billion yuan ($27.9 billion) in the first half compared with a year earlier, according to official data. BNP Paribas SA and Morgan Stanley have laid off bankers following a deals slump, while Nomura Holdings Inc. is still trying to stem years of losses from its operations there.
Daiwa ought to do “as much as we can” to turn profit in China in 2026, such as strengthening collaboration with investment funds to land more business, Ogino said. Losses at Beijing-based Daiwa Securities (China) Co. narrowed 22% in 2023 to 48.6 million yuan based on filings, the third consecutive year of deficit since it got its license there in 2021. The firm’s headcount has hovered around 110 people over the years.
“The Chinese economy is certainly stagnating, and the real estate market is particularly sluggish. Some people say it’s the same as when Japan’s economic bubble burst” in the early 1990s, said Ogino, who became CEO in April this year. “But it is such a big market. I think we can see a victory path if we do things well.”
Japan’s economy in contrast appears set for the central bank to tighten monetary policy further, as corporate profits grow alongside signs of mild inflation taking hold, Ogino said.
Daiwa expects the Bank of Japan will raise its policy interest rate in January to 0.5% from the current 0.25%, then lift it further to 0.75% by the end of 2025. BOJ Governor Kazuo Ueda last week opened up the possibility of waiting longer for the next rate hike in comments that lowered expectations of a January move and hammered the yen.