Many investors get excited at the mere mention of anything about China. The promise of an immense, opening market is tantalizing. The potential profits ahead for many companies are intoxicating. At least one industry in China is in bad shape, though: the brokerage business.
According to a Xinhua-PRNewswire-FirstCall report, "Xinhua Far East China Ratings, the pioneer in ranking credit risk among Chinese corporations using international standards, today announced its sector research report on China's brokerage industry. ... Since 2002, among the 100 or so brokerages in China, 17 securities companies have been sanctioned to close or put under external receivership due to severe non-compliance and financial distress. In addition, two brokerages are being restructured."
Making matters worse, even among 50 "arguably relatively healthy" brokerages, audited financial statements show a net loss of $562 million in 2004. About 23 might require an infusion of $2.5 billion to recapitalize, while many others will simply need to be bailed out. Yikes.
Fortunately, America is a safer place in which to invest in stocks, funds, and bonds. Here are some articles describing various protections and resources available to us investors:
The Securities Investor Protection Corporation (SIPC), for example, is ready to protect up to $500,000 per brokerage customer in the event of a total brokerage failure. That includes up to $100,000 in cash claims.
We in the U.S. also have a more healthy lot of brokerages from which to choose. You may be happy with yours, but it could still be worth it to look at some others. Among other things, the best brokerage for you will feature the lowest fees for things you do the most often, such as trading stocks or buying mutual funds. Ameritrade
You can get much more advice on evaluating and choosing the best brokerage for you in our Broker Center -- check it out. These other Fool articles on brokerages may also be of interest:
- Which Brokerage Is Best?
- You Can Trade Online
- Ameritrade Fires Another Round
- The $5 Stock Trade
- Brokerage Statement Bewilderment
- Don't Get Blindsided by Your Broker
- Rating the Low-Cost Brokerages
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.