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Morgan Stanley (MS) Gets Permit to Set Futures Company in China

The China Securities Regulatory Commission (“CSRC”) has allowed Morgan Stanley MS to set up a futures company in Beijing.

The regulator said, “In the next step, the China Securities Regulatory Commission will continue to deepen the opening up of the futures market, and support qualified overseas institutions to invest in domestic futures companies.”

This April, the CSRC accepted Morgan Stanley’s application to set up a futures company in the country. A spokesperson for Morgan Stanley said, the bank “looks forward to establishing a futures company in China as we grow our domestic business footprint.”

Thus, Morgan Stanley becomes the second foreign bank to wholly own a futures business in the world’s second-largest economy.

The first foreign bank to fully own a futures company in China is JPMorgan JPM. In June 2020, JPM received approval to increase its stake in its futures joint venture (JV) — J.P.Morgan Futures Co. — from 49% to 100%.

Our Take

Morgan Stanley has a presence in China since 1994. With offices in Beijing, Shanghai, Hangzhou, Shenzhen and Zhuhai, and a regional office in Hong Kong, the company offers a wide array of services to domestic and international clients, including financing, restructuring, M&A advisory, research, fixed income and foreign exchange.

Given that China’s financial market is open to foreign firms following the removal of ownership restrictions in 2018, several global banks have capitalized on the lucrative prospect.

While China continues to be the second-largest equity market globally, and is one of the broadest and deepest growth markets outside the United States, its business climate has deteriorated significantly and because of the increasing restrictions in the region, the private sector has been negatively impacted. Deal-making has also been curbed, hampering investment banking (“IB”) business growth. Thus, MS is scaling back its expansion plans in the country.

Morgan Stanley has been considering cutting around 7% of jobs in the Asia-Pacific region (excluding Japan). This is part of the broader 3,000 IB job cuts the company announced earlier.

Of the total cuts, China is likely to take the biggest hit because of the slowing economic growth in the country.  Last year, MS slashed roughly 50 IB jobs in the Asia-Pacific region, with a large number being China-focused positions.

Over the past six months, shares of Morgan Stanley have lost 9.8% compared with the industry’s decline of 17.4%.

 

Zacks Investment Research
Zacks Investment Research


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Currently, Morgan Stanley carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Like MS, other Wall Street giants, including The Goldman Sachs Group, Inc. GS and JPM, have begun realizing that their plans to generate significant profits from China are tougher than expected. GS, which was ahead of targets in 2021, has revised its projections on its five-year plan.

Since September 2022, at least 100 China-focused jobs have been lost. Goldman Sachs has removed more than one-tenth of its workforce in China after almost doubling its headcount to above 600.

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