You are here

China brokerage upstart East Money now bigger than Credit Suisse

BT_20200916_UPSTART16_4242508.jpg
Stock trading fees are low across China, with securities firms charging fees from just above zero to about 0.25 per cent, while top brokers such as Huatai Securities and Guangfa Securities charge above one per cent on some popular mutual funds.

Beijing

EAST Money Information Co, founded by a 49-year-old former stock commentator, is one of the big winners in China's wildest stock frenzy in half a decade.

Shares in the online broker and market data provider have rocketed 78 per cent this year, giving it a market value of more than 200 billion yuan (S$40 billion). That puts it among the world's biggest traded institutional brokers, making it more valuable than even Credit Suisse Group AG, data compiled by Bloomberg showed.

Its founder, a former analyst and columnist who goes by his pen name, Qi Shi, has become very rich. After starting the firm in 2005 as Shanghai Dong Cai Information Technology, his 21 per cent stake is now worth US$6.2 billion. His father and wife, the second- and third-largest shareholders, own another 5 per cent combined.

Like the popular Robinhood Markets Inc app in the United States, East Money has found a sweet spot with tech-savvy youth as millions, stuck at home amid the coronavirus, turned to stock trading. Its revenue swelled 67 per cent in the first half of 2020 and its net income more than doubled.

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

Unlike the crowded US scene, where Robinhood and E*Trade Financial Corp are slashing fees to zero, the company has been able to keep charging customers on trades, but at a lower rate than the traditional brokers.

It has a leg up on its local rivals, analysts and investors say, being the only Chinese internet broker with licences to trade stocks and sell mutual funds, which make up 90 per cent of its revenue. The firm runs a popular chat forum, called Guba, where millions of investors swap stock tips and rumours, while it also sells market data to institutional investors.

"The stock rally is linked to the rarity of its business model," said John Zhou, Shanghai-based managing director and fund manager at MQ Investment, who has East Money as one of his top 10 Chinese stock holdings. "It's a financial data provider and broker, it fits in both camps and is the only player in its own field."

East Money has declined to divulge how many users it has, but Daiwa Capital Markets estimates its stock app has about 11.4 million monthly active users and its mutual fund app about 10.9 million.

Among Chinese stock-market apps it only lags behind Hithink RoyalFlush Information Network Co's 17.3 million clients, Daiwa said in an August report.

In a rare interview with China Business News in 2014, Mr Qi said his push to create an online platform for communication and information for investors stemmed from being an "introvert".

From its start as an information provider, East Money branched out in 2015, obtaining a licence when it bought broker Tongxin East Fortune Securities Co Ltd. It secured a mutual fund licence in 2018, allowing it to run its own funds on top of selling third-party products.

Clients can pick from more than 8,000 mutual funds from 140 asset managers on the site. Its transactions jumped 83 per cent to 568 billion yuan in first half of this year, surpassing even the 334 billion yuan in sales by Industrial and Commercial Bank of China Ltd, the nation's largest bank.

The firm charges 0.25 per cent on stock trades and offers a rate as low as 0.15 per cent on mutual fund transactions.

Max Wang, a 29-year-old working in sales at a fund manager in Shanghai, is an avid user. He first found the site when he was an intern back in 2015, using it to check prices and data, and then started making purchases.

"It basically has every mutual fund product for sale so you don't need to open many accounts with various brokers," Mr Wang said. "I find some features very smart. With one click they can automatically allocate my idle money to various selective money-market funds to diversify risks."

Stock trading fees are low across China, with securities firms charging fees from just above zero to about 0.25 per cent, while top brokers such as Huatai Securities Co and Guangfa Securities Co charge above one per cent on some popular mutual funds.

Of the 31 analysts that follow the firm, 28 have a buy rating. Daiwa analysts led by Leon Qi maintained an underperform rating in August, citing East Money's now unappealing valuation of 7.3 times forward price-to-book ratio. The average for Chinese brokers is 1.59 times, data compiled by Bloomberg showed.

The analyst is also more bullish on Hangzhou-based RoyalFlush because it spends more on research and development, has a more diverse revenue base and is not saddled by the costs and risks of owning a brokerage.

But Dai Danmiao, a Shenzhen-based analyst with Guosen Securities Co, said East Money has a strong point in its "killer" stock-forum chat site.

"Users are very attached given its high social network element, they can easily open a stock account after active discussions on certain stocks with one click," he added.

While Mr Dai said the broker is at the mercy of volatile markets and faces competition from companies such as Ant Group, which obtained licence to sell funds in 2015, its broad array of products and user loyalty put it at an advantage.

For now, its users are sticking. BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes