In a gold rush, sell shovels. In a U.S. stock-trading mania, be an online broker—a Chinese one, that is.
The day-trading craze fueled by platforms such as Robinhood reached a climax last month as individual investors pushed stocks like
through the stratosphere. Investing in closely held Robinhood is tough, but investors have jumped into Chinese online brokers, which have also been riding the frenzy.
Shares of Nasdaq-listed Futu and Up Fintech—the equivalent of Robinhood in China—have both nearly quadrupled this year. These brokers charge low commissions to enable mostly Chinese investors to trade U.S. and Hong Kong stocks.
Futu, backed by Tencent, said this week that daily active users of its app are now above one million. That is a big jump from 580,000 last quarter, according to Morgan Stanley. The new users will bring in higher commissions, but also allow Futu to make more money from margin finance and other services. Futu made around 40% of its revenue from interest and other income for the third quarter in 2020.
Futu and Up Fintech, more commonly known as Tiger Brokers, already had a strong 2020, thanks to a combination of stay-at-home traders, a record bull market and a strong pipeline of initial public offerings. Futu’s operating profit rose fivefold in the first nine months of 2020, while Tiger, backed by smartphone maker Xiaomi, turned profitable.
This year will likely be even better: Average daily turnover in the Hong Kong market more than doubled year over year in January, while turnover in the U.S. has increased 62%, according to Citi. Turnover in Hong Kong hit the equivalent of $39.16 billion on Monday, a record. And more customers could be coming: China is considering allowing individuals to use their $50,000 foreign-exchange quota to buy overseas securities, an official at China’s foreign-exchange regulator told local media last week.
Yet these brokerage stocks are already just as frothy as the markets. Futu is trading at 86 times this year’s expected earnings, while Tiger is at 113 times, according to S&P Global Market Intelligence. They may still move higher, as long as the market remains exuberant, but any reversal would be hard and swift.
Write to Jacky Wong at [email protected]
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