Opening U.S. investments to the Chinese middle class

The stars seem to be aligning for Nasdaq's partnership with Futu Securities, the largest China-based online brokerage firm. The U.S. stock market's eight-year bull run, a cloudy outlook for China's economy and the rise of its tech-savvy middle class have all converged, resulting in lots of upward growth for the five-year-old Futu, which offers mainland Chinese investors access to U.S. equity markets.

Unlike a traditional broker, Futu is entirely web-based; users trade and invest via desktop or mobile apps. Futu, which has raised about $70 million in two rounds of funding and is currently seeking a third, has about 3.4 million app users and 200,000 trading accounts since its inception in 2012. The firm has grown its business by 500 percent each year.

"There are a lot of stocks that emerged during the bull market and there are a lot of stocks that Chinese investors are familiar with, such as Apple, Alibaba, and other Chinese ADRs," said Futu Securities' founder and chairman, Li Hua, who launched the company after working at Chinese internet giant Tencent, which today owns more than 20 percent of Futu. "But [Chinese investors] have limited access to real-time U.S. stock market pricing and it can discourage them from investing in the U.S. market."

Enter Nasdaq, which since 2016 has been bolstering the Futu platform with its Basic and Global Index Data Services (GIDs). While Nasdaq Basic is an exchange-provided alternative for real-time best bid/ask quotes and last-sale information for all U.S. exchange-listed stocks, GIDs provide intraday index values, index component data, and end-of-day summary reports for Nasdaq-licensed indexes and some third-party indexes.

"We now have access to real-time market data that we were unable to receive before, in a simple and single feed," said Li. "Nasdaq's leading market data products provide strong reference data and in-depth information—which is what Chinese investors are really keen on seeing."

Futu is one of many new financial services firms targeting Chinese investors looking to diversify via investments abroad. According to Bloomberg, the number of active brokerages in Hong Kong alone was 741 in 2016, up 44 percent from 2015. A company like Huatai Securities is another player emerging in China's fast-growing fintech revolution to meet the needs of China's new middle class, a demographic expected to comprise 70 percent of China's population by 2030. Many factors signal big potential for Futu Securities' continued growth. According to the China Internet Network Information Center, in 2016, China had 710 million internet users—more than the U.S. and Europe combined—bringing its online penetration rate up from 1.8 percent of the population in 2000 to 51.7 percent by mid-2016. Smartphone use by China's young millennial-aged generation is ubiquitous—92.5 percent of Chinese internet users go online via connected mobile devices.

Investors among the country's growing middle class are also less influenced by and less trusting of traditional banks, which signals that they may are more open to trusting new financial upstarts like Futu with handling their money and investments.

Lastly, Chinese investors are showing a preference to invest in U.S. dollar-dominated securities, as the renminbi has depreciated over the past year or so in step with the country's slower-growing economy. As Chinese investors look to diversify, American tech stocks like Apple, Facebook, and Microsoft are alluring, thanks both to their performance over the past few years as well as their brand familiarity. So are well-known Chinese companies listed on U.S. exchanges—think Baidu and Alibaba, two of China's largest internet firms—which historically haven't been easily available to Chinese retail investors.

"We are aligned with Nasdaq because many of the world's most famous internet companies have listed here," said Li, who notes that before working with Nasdaq, Futu's team of technologists had to work with each individual U.S. exchange for market data, which was a cumbersome process. "Working with Nasdaq—one of the leading U.S. exchanges—creates strong synergy and visibility for Futu among the Chinese investment community."

Download the full Futu/Nasdaq case study to learn why retail online brokers and FinTech firms partner with Nasdaq to provide investors with access to the U.S. markets.

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