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Bridging the gap between Chinese Investors and US Stocks

· stocks,investing,china

While opportunities are not usually bound by borders, a lack of appropriate mechanisms can hinder success. Such obstructions typically don't undermine the interests of investors to invest outside their homeland. For example, the phenomenal success of Alibaba (BABA)—where a China-based company went on to become the largest IPO ever on a U.S. exchange—is reflective of the overwhelming U.S. investor interest in a Chinese firm.

 

Meanwhile, investing abroad has long been out of reach of most Chinese, but their growing interest in U.S. companies has been noted. Here’s a look at how Nasdaq (NDAQ) and Futu Securities are bridging the gap between U.S. companies and retail investors in the mainland.

Nasdaq & Futu

With a vision to provide a seamless platform for Chinese investors to gain access to and invest in U.S. stock markets, Futu Securities was founded in 2012. Futu breaks the image of a conventional brokerage firm, as its services are entirely web-based (desktop and mobile). With over 3 million app users and 100,000 trading accounts as of December 2016, Futu has grown by 500% each year since its launch to become the largest China-based online brokerage firm.

While catering to a growing number of Chinese investors, Futu was struggling with cumbersome processes at individual exchange level to gather U.S. market data. To streamline such complexities, Futu struck a partnership with Nasdaq for all its needs related to U.S. exchange equities. Nasdaq provides accurate feeds for all U.S. exchanges via Nasdaq Basic and Global Index Data Services (GIDS) to Futu’s client base.

Nasdaq Basic is an exchange-provided alternative for real-time Best Bid and Offer, and Last Sale information for all U.S. exchange stocks. Nasdaq Basic is twice as accurate as compared to any other Level 1 U.S. market data alternatives while being cost effective and easy to manage.

Nasdaq’s GIDS provides intraday index values, index component data and end-of-day summary reports for Nasdaq-licensed indexes and some third-party indexes. This translates to reduction in network, administrative and data center costs as multiple data channels are replaced by one data feed.

By leveraging Nasdaq Basic and GIDS suites, Futu is connecting China’s small-time investors with U.S. markets in a smart way.

Why are Chinese investors interested U.S. Stocks?

The trend and enthusiasm to invest in U.S. stocks is driven by multiple factors:

  • U.S. exchanges offer some of the best companies across industries in the world. These companies are well-known brands, solid performers with global operations. Facebook (FB), Starbucks (SBUX), Amazon (AMZN) and Microsoft (MSFT) fit this criterion aptly. Chinese investors are given a chance to invest in some of its beloved brands, with Apple (AAPL)—manufacturer of the iPhone—being one of them.
  • Companies listed on U.S. exchanges are subject to severe scrutiny in terms of documentation and compliance. This boosts the confidence of smaller investors, even in some of its own companies that are listed abroad as American Depository Receipts (ADRs).
  • The volatile swings in Chinese stocks and real estate markets have discouraged investors and capped options to grow money. Further, the slowdown in the Chinese economy coupled with depreciating currency has played a dampener, leading to Chinese investors looking for avenues outside the mainland across different assets—real estate or stocks—denominated in more stable currencies such as the U.S. dollar to lock their wealth.
  • China is experiencing a revolution with more and more people using the Internet and applications offered online. The rising middle class in China is smart and tech savvy—and more open to experimenting with newer ways of investing. According to the China Internet Network Information Center (CNNIC), up to December 2016, the number of Internet users in China amounted to 731 million, with an Internet penetration rate of 53.2%. In this, mobile Internet users took up 95.1% of the total, with an annual growth rate exceeding 10% for three consecutive years.

Final Word

With days of language barriers, restricted approach and quagmire of rules long forgotten, modern-day Chinese investors are not just more indulging and aware but are embracing advanced technology driven platforms and geographical diversification to explore products that have traditionally remained almost impenetrable.

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