This Upstart Chinese Brokerage Is Now Bigger Than Credit Suisse

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% this year, giving it a market value of more than 200 billion yuan ($29 billion). That puts it among the world’s biggest traded institutional brokers, making it more valuable than evenCredit Suisse Group AG, according to data compiled by Bloomberg.

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% stake is now worth $6.2 billion. His father and wife, the second- and third-largest shareholders, own another 5% combined.

Like the popularRobinhood Markets Inc. app in the U.S., 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% in the first half of 2020 and its net income more than doubled. Unlike the crowded U.S. 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 licenses to trade stocks and sell mutual funds, which make up 90% of its revenue. The firm runs a popular chat forum, called Guba, where millions of investors swap stock tips and rumors, 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.”

Qi was not available for an interview and the company declined to comment. It also 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 behindHithink 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, Qi Shi, which means “as a matter of fact” in Chinese, 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 license when it bought brokerTongxin East Fortune Securities Co Ltd. It secured a mutual fund license in 2018, allowing it to run its own funds on top of selling third-party products.

8,000 Funds

Clients can pick from more than 8,000 mutual funds from 140 asset managers on the site. Its transactions jumped 83% 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% on stock trades and offers a rate as low as 0.15% 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,” 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%, while top brokers such asHuatai Securities Co. and Guangfa Securities Co. charge above 1% 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, according to data compiled by Bloomberg.

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 isn’t saddled by the costs and risks of owning a brokerage.

‘Killer’ Chat

But Dai Danmiao, a Shenzhen-based analyst withGuosen 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,” Dai said.

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

For now, its users are sticking. “There are other investing websites and apps such as Alipay which are also handy,” said Max Wang. “But I have got used to East Money’s website and app over the years, I don’t think I will switch easily.”

— With assistance by Richard Macauley, Evelyn Yu, Zheng Li, Cheng Ma, Lujia Yu, and Jun Luo

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