In a gold rush, sell shovels. In a US stock trading mania, be an online broker – a Chinese, in fact.
The day-trading craze fueled by platforms like Robinhood peaked last month as individual investors pushed stocks like GameStop through the stratosphere. It is difficult to invest in Robinhood, but investors have taken to Chinese online brokers, which has also been riding the frenzy.
Futu FUTU shares listed on the Nasdaq -4.20%
and Up Fintech TIGR -10.03%
– the equivalent of Robinhood in China – have almost quadrupled this year. These brokers charge low commissions to allow predominantly Chinese investors to trade US and Hong Kong stocks.
Futu, supported by Tencent,
said this week that its app’s daily active users now exceed one million. That’s a big jump from 580,000 last quarter, according to Morgan Stanley. New users will bring higher commissions, but also allow Futu to make more money through margin financing and other services. Futu made about 40% of its revenue from interest and other income for the third quarter in 2020.
Futu and Up Fintech, better known as Tiger Brokers, have already had a strong 2020, thanks to a combination of focus traders, a record bull market and a strong pipeline of initial public offers. Futu’s operating profit increased fivefold in the first nine months of 2020, while Tiger, backed by smartphone maker Xiaomi,
This year is likely to be even better: Average daily turnover in the Hong Kong market more than doubled year-over-year in January, while turnover in the United States increased by 62 %, according to Citi. Revenue in Hong Kong reached the equivalent of $ 39.16 billion on Monday, a record high. And more clients could come: China is considering allowing individuals to use their foreign exchange quota of $ 50,000 to buy securities abroad, an official with the Chinese currency regulator said last week.
Yet these brokerage stocks are already as foamy as the markets. Futu is trading at 86 times expected earnings this year, while Tiger is trading at 113 times, according to S&P Global Market Intelligence. They may rise further, as long as the market remains exuberant, but any reversal would be difficult and quick.
Write to Jacky Wong at JACKY.WONG@wsj.com
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Appeared in the print edition of February 24, 2021 under the title “ The locust trees of China are doing well ”.