2023: China's Robinhoods Remain Unrecognized

Recently, China has been sending out more positive signals to businesses. However, online brokers similar to Robinhood have yet to receive any support from the Chinese government in 2021.

Futu Holdings, a Chinese online broker listed on the U.S. stock exchange, has seen a decrease of 31.00% in its stock value.

Shares of UP Fintech Holding Limited (NASDAQ: TIGR) have declined by 28.51% today.

Tiger Brokers, a company that is well-known, had a less than ideal ending to 2022. On Friday, their stocks dropped by a staggering 30% after Chinese regulators declared that they had been participating in unlawful activities that enabled customers in mainland China to make international trades. As a result, Futu announced that they would be delaying their dual-listing in Hong Kong, which was supposed to take place on Friday.

Futu and Tiger have become increasingly popular among Chinese investors due to their low-fee trading platforms. These platforms allow investors to trade stocks listed in the U.S. and Hong Kong. During the pandemic, these businesses experienced a surge in growth, similar to the success of Robinhood in the U.S.

For a long time, two brokers have been operating in a murky area, allowing mainland Chinese investors to independently purchase foreign stocks, which is usually only possible through specific, government-approved plans with limited funds. In 2021, state media criticized the companies for breaching China's securities regulations, leading to a decrease in their stocks. However, in the past few months, Beijing has been concentrating on economic growth and loosening up the pandemic restrictions and control on private companies. As a result, Futu's shares rose by 82% in November and Tiger's by 40%.

Despite China's improved attitude towards business, Futu and Tiger have not been included in this. Cross-border securities transactions can lead to capital leaving the country, which could potentially weaken China's capital controls. These controls have been essential in preventing the yuan from depreciating and stabilizing the real estate market during times of financial turmoil, such as in 2015 and 2016.

Regulators have mandated that Futu and Tiger must cease taking on new customers from mainland China. Existing domestic investors are still able to trade, but they will not be able to deposit any additional funds into their accounts. Since state media criticized them for cross-border transactions, the two brokers have been attempting to broaden their customer base outside of mainland China. However, as of June, mainland Chinese investors still made up around a third of Futu's paying customers, which was higher than the end of 2019 when they accounted for more than two-thirds. Additionally, they accounted for 44% of Futu's revenue for the six months ending in June. By preventing existing mainland Chinese customers from bringing in new money, it is likely to have a negative effect on the growth of Futu and Tiger.

Chinese businesses have been given a reprieve as the government shifts its focus away from its stringent zero-Covid policies and back to economic growth. Unfortunately, not all sectors will be able to take advantage of the more relaxed atmosphere—online brokers in China are still being excluded.