Chinese stocks Futu Holdings (NASDAQ:FUTU) and UP Fintech (NASDAQ:TIGR) both fell 10% overnight on the news they will remove their trading apps from Chinese app stores.
The companies acted on orders from Chinese regulators. Futu, whose app is called Futubull, is backed by China’s Tencent Holdings (OTCMKTS:TCEHY). UP Fintech does business as Tiger Brokers, with a web address in Singapore. Its financial backing comes from Xiaomi (OTCMKTS:XIACY) of Hong Kong.
Both companies were warned in 2021 that they were not licensed in China and would be acting illegally if they let mainland Chinese use their services. The companies said they stopped soliciting mainland Chinese customers at the end of 2022.
Futu opened below $40 per share, a market capitalization of about $6 billion. UP Fintech opened near $2.85, with a market cap of nearly $440 million.
China’s Control
China’s government is determined to control all data flows by Chinese citizens and is limiting their ability to do business outside government-approved channels. It is also in the process of separating its capital markets from those of the West and seeking to make the Chinese Yuan a reserve currency. The move against the trading apps makes it harder for Chinese investors to trade companies outside China.
The latest moves are in keeping with the trend and had been hinted at for some time. As China’s economy has recovered, the tech crackdown that began in 2020 has been extended into finance. State-owned enterprises (SOEs) have become the country’s best investments, thanks to low valuations and dividend payouts.
Before the latest moves, FUTU stock was up over the last year while TIGR was down 14%. Both stocks had been benefitting from increased trading activity in Hong Kong.
Chinese Stocks: What Happens Next
The long, slow break-up between Chinese and Western markets, as well as between the Chinese and Western Internet, looks set to continue. China will only tap into Western money on its own terms.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
