ANALYSIS: Futu to Offer Portfolio Balance Outside of the Geopolitical Hostilities

Futu is changing the way brokers profit, and, we believe, it will also be the go-to brokerage for the wealthy younger generation of China.

Author: Steve Kanaval   

Despite a challenging and worst-case scenario in Hong Kong, Futu Holdings Ltd. (Nasdaq: FUTU) saw encouraging signs for the future.

The value proposition for FUTU is that the company allows for overseas trading for mainland China as long as mainlanders already have their capital offshore. This is a potentially lucrative business as McKinsey recently reported that 10% of all Chinese wealth is banked offshore. In addition, McKinsey expected the private wealth of Chinese citizens to reach 158 trillion yuan by 2021, with more than 56 percent of that accumulated in the form of non-cash assets.

And in Q3, this value was visible even during a very turbulent time in Hong Kong. The company saw registered clients increase by 42.8% and paying clients also increase by 41.6%. In addition, client assets increased by 33%, and this large number can be attributed to investors seeking portfolio balance in overseas stocks outside of the geopolitical hostilities in Hong Kong.

"Despite the ongoing situation in Hong Kong and the weak equities market, we were pleased with our performance during a challenging third quarter," Leaf Hua Li, FUTU's chairman and chief executive officer, said. "The total number of paying clients jumped almost 41.6% year-over-year. In particular, even though we decided to scale back our marketing efforts in Hong Kong given the difficult social situation, we were able to almost double the number of paying clients in the city while maintaining double-digit growth in net new client additions on a year-over-year basis. This speaks to the unique value proposition of our platform and the high potential of this market." 

Money Plus was also a nice growth driver for FUTU. The wealth management tool is attracting a younger demographic in Mainland China and Hong Kong. And, with just a few months of being open, Money Plus booked more than HK$3 billion in total client assets.

"We believe that Money Plus is uniquely positioned in Hong Kong given that the market is notorious for exorbitant bank subscription fees, and a lack of both mobile-friendly platforms to manage mutual fund positions and fund holdings analyses to facilitate investment decisions," Li added about the wealth management tool in the company call. 

He also said, "The money market funds are especially popular on our platform because they offer significantly higher interest rates than bank checking accounts and because there are so few money market products in Hong Kong. We seamlessly integrate our clients' mutual fund and brokerage accounts so that they can instantaneously redeem money market fund positions for stock purchases. We will continue to enrich our mutual fund products as a part of our work to provide the best investing experience for users."

Overall, Futu Holdings continues to look undervalued for a company that is pushing regulatory boundaries in China. The company is changing the way brokers profit, and, we believe, will also be the go-to brokerage for the wealthy younger generation of China. This younger generation is used to mobile technology that is powerful and clean, and FUTU easily provides that option along with all the right security and regulatory checked boxes.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)