Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<a href="https://www.smartkarma.com/entities/futu-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27858:1" rel="noopener">Futu Holdings Ltd (FUTU US)</a>  is China’s largest online brokerage, both by revenue and market cap, and backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>. <a href="https://www.smartkarma.com/entities/up-fintech-holding-ltd" target="_blank" data-smartkarma-citation="entities:27957:1" rel="noopener">UP Fintech (TIGR US)</a>, also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>, and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily <a href="http://sh.people.com.cn/n2/2021/1014/c139965-34956684.html" target="_blank" rel="noopener">stated</a> that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 
<ol>
<li>What are the Relevant Data Laws?</li>
<li>What was new in the People's Daily report? </li>
<li>How have the Online Brokerages sought to mitigate Data Regulations?</li>
<li>Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? </li>
</ol>
More details below the fold.

Futu Holdings Ltd (FUTU US)  is China’s largest online brokerage, both by revenue and market cap, and backed by Tencent (700 HK). UP Fintech (TIGR US), also known as Tiger Brokers, is backed by veteran American investor Jim Rogers, smartphone giant Xiaomi Corp (1810 HK), and U.S. brokerage giant Interactive Brokers Group Inc. Both had looked to cash in on the growing amount of Chinese retail investor money pouring into U.S. stocks following a banner year in 2020.
On 14 October 2021, the People's Daily stated that online brokerages, naming Futu and Up Fintech specifically, that operate across borders run the risk of violating data privacy rules and personal information protection laws, the latter taking effect from 1 November 2021. 
On the same day, Futu’s shares plummeted more than 13% to USD73.11, down 62% from the peak in February. UP Fintech fell more than 20% to USD8.19, down 78% from its February high. 
The additional regulatory scrutiny compounds the woes of China's online brokerages following a torrid 2 quarters, where investor appetite and trading volumes slumped, particularly for US ADRs and HK tech stocks, amidst a weak market environment.
In statements issued last Friday (15 Oct), both firms affirmed that they have pro-actively complied with relevant regulations and addressed issues raised by the Special Task Force on the Regulation of Apps since July 2019, seeking to quell investor concerns following the People's Daily Report. 
In this Insight, we discuss the following: 

What are the Relevant Data Laws?
What was new in the People's Daily report? 
How have the Online Brokerages sought to mitigate Data Regulations?
Can Online Brokerages Allow Mainland Investors to Trade Offshore Assets in the First Place? 

More details below the fold.

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Bottom-Up

<ul>
<li>The whole game industry slowed down in 3Q21, even mobile game.</li>
<li>Tencent still owns the top-two games, but small studios grew aggressively.</li>
<li>Furthermore, the overseas market is promising, which has not been limited by any authorities.</li>
</ul>


The whole game industry slowed down in 3Q21, even mobile game.
Tencent still owns the top-two games, but small studios grew aggressively.
Furthermore, the overseas market is promising, which has not been limited by any authorities.


Tencent (700 HK): Flat Game Industry in 3Q21, Threats from Small Studios, But Hope from Overseas

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> share price has seen an upward trend since 06th October 2021 and has gained about 11.0% since then. However, Tencent’s shares have lost about 35.3% since its peak of HK$766.5 in January this year, though shares saw some short-term gains here and there during this period. Though the recent rally in Tencent’s share price may seem like the negativity is over, we think the otherwise as we believe the ongoing regulatory crackdown on the Chinese tech sector will continue to impact Tencent’s earnings growth negatively. In August this year, Tencent’s shares had a positive rally due to a positive shift in sentiment (with government intervention to avoid a disorder and mass confusion) and the shares became further oversold.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/235/708/original/image_67168870321634527156991.png?1634527156" class="editor-image img-responsive" data-smartkarma-image-id="235708"></figure>

Tencent (700 HK) share price has seen an upward trend since 06th October 2021 and has gained about 11.0% since then. However, Tencent’s shares have lost about 35.3% since its peak of HK$766.5 in January this year, though shares saw some short-term gains here and there during this period. Though the recent rally in Tencent’s share price may seem like the negativity is over, we think the otherwise as we believe the ongoing regulatory crackdown on the Chinese tech sector will continue to impact Tencent’s earnings growth negatively. In August this year, Tencent’s shares had a positive rally due to a positive shift in sentiment (with government intervention to avoid a disorder and mass confusion) and the shares became further oversold.

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Quantitative Analysis

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Meituan (3690 HK),  as well as outflows from Wuxi Biologics (Cayman) Inc. (2269 HK).

In our weekly HK Connect Flow series, we aim to highlight key stocks and sectors which the mainland investors traded via the southbound Hong Kong Connect, as analyzed by our proprietary data engine.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In 2020, Southbound trading accounted for 22% of the equity market ADT. We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.In this insight, we will highlight inflows into Tencent Holdings Limited (700 HK), Meituan (3690 HK),  as well as outflows from Wuxi Biologics (Cayman) Inc. (2269 HK).

Hong Kong Connect Flows: Tencent, Meituan, Wuxi Biologics, Kintor

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>It all seems relatively quiet on the digital marketplace and payments space in China, from the regulatory perspective</li>
<li>The regulatory authorities appear to be busy with other issues, namely the potential fall out from the real estate crunch</li>
<li>We believe that Alibaba is past the worst of the regulatory headwinds, and that the tougher business climate is priced into <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> shares</li>
<li>We revisit Alibaba, and its relative valuation to its core China peers and <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> </li>
<li>Even following the cuts to EBITDA consensus forecasts, Alibaba looks inexpensive relative to Amazon and <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> </li>
<li>The recent recovery in the shares is justified, in our view, and we see further medium term re-rating potential not just on fundamentals, but also due to technical factors</li>
<li>Risks to our positive view on Alibaba include a worse than expected loss of market share in its market place operation resulting in weaker earnings and further estimates downgrades</li>
</ul>


It all seems relatively quiet on the digital marketplace and payments space in China, from the regulatory perspective
The regulatory authorities appear to be busy with other issues, namely the potential fall out from the real estate crunch
We believe that Alibaba is past the worst of the regulatory headwinds, and that the tougher business climate is priced into Alibaba Group (BABA US) shares
We revisit Alibaba, and its relative valuation to its core China peers and Amazon.com Inc (AMZN US) 
Even following the cuts to EBITDA consensus forecasts, Alibaba looks inexpensive relative to Amazon and Tencent (700 HK) 
The recent recovery in the shares is justified, in our view, and we see further medium term re-rating potential not just on fundamentals, but also due to technical factors
Risks to our positive view on Alibaba include a worse than expected loss of market share in its market place operation resulting in weaker earnings and further estimates downgrades


Alibaba (BABA US) – No Longer the Black Sheep?

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

China Online Brokerages - "No Critical and Sensitive Personal Data to See Here!"

China's online brokerages risk running afoul of new data privacy rules and personal information protection laws. This is compounded by poor trading...

Jason Yap, CFA

Tencent (700 HK): Flat Game Industry in 3Q21, Threats from Small Studios, But Hope from Overseas

The whole game industry slowed down in 3Q21. Tencent still owns the top-two games, but small studios grew aggressively. Furthermore, the overseas...

Ming Lu

Tencent: Worst Is Not Over Yet

Though the recent rally in Tencent’s share price may seem like the negativity is over, we believe the ongoing regulatory crackdown will continue to...

Shifara Samsudeen, ACMA, CGMA

Hong Kong Connect Flows: Tencent, Meituan, Wuxi Biologics, Kintor

We highlight Hong Kong Connect inflows into Tencent Holdings Limited (700 HK), Meituan (3690 HK), and outflows from Wuxi Biologics (2269 HK).

Ke Yan, CFA, FRM

Alibaba (BABA US) – No Longer the Black Sheep?

Investor sentiment on Alibaba is turning, we believe, especially since the Chinese regulatory offensive has moved on to other sectors, supported by...

Victor Galliano

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