Emerging markets have been experiencing exciting growth as of late. Not only are we seeing the natural growth that comes along as economies emerge, we're seeing Covid-19 pandemic rebounds serving to exacerbate the gains.
One of the areas we're seeing the most incredible growth within emerging economies is in financials. As these economies grow, money begins to flow, and those that provide financial services such as the facilitation of trading within stock and commodities markets or insurance tend to experience compelling growth.
However, as with any other sector, not all fintech stocks in emerging markets are created equally. So, it's important to be selective when investing in the space. Here are five fintechs in the emerging Chinese market that I believe come with incredible potential.
You can't talk about emerging market fintech plays without giving Futu Holdings a mention. The company is centered around a brokerage and wealth management platform in China, Hong Kong, the United States and other regions on the international stage.
Moreover, analysts seem to love FUTU stock, with three out of four rating the stock a buy and one rating it a hold, according to analysts surveyed by TipRanks. Price targets on the stock range from $171 to $253, with a mean price target of $223.50, suggesting that there's still room for tremendous growth ahead.
So, what are analysts so excited about? The Hong Kong stock exchange is one of the largest on the global market, and investor interest in the region is only beginning to take off. At the same time, China's Shanghai Stock Exchange is seeing similar growth and both of these regions are prime targets for FUTU.
Perhaps that's why the company is seeing strong growth in users. In the company's most recent earnings report, released in November, Futu Holdings said that registered clients increased 79.7% year-over-year to 1,173,242, with total users growing 52.2% to 10.4 million.
All told, the company's clients trust it with more than $200 billion in combined assets. And many believe it's just the beginning. As the market emerges in China, Hong Kong and other regions in which the company operates, the tremendous growth we've seen in FUTU is likely to continue, making it one to watch closely.
Up Fintech Holdings' primary holding is Tiger Brokers, often called the Robinhood of China. Much like Robinhood in the United States, Up Fintech and its Tiger Brokers subsidiary give consumers in China easy access to equities markets through a mobile app.
Moreover, the company offers investors access to the market with no minimum investment requirement, providing further accessibility to Chinese investors.
As with Futu Holdings, Up Fintech has seen incredible growth in users, and that growth has led to profitability. In fact, just last year, the company broke the break even barrier.
Considering the compelling growth Up Fintech has seen over the past year or so, it's not surprising to see that the one analyst has already begun covering this relatively unknonw (to the U.S.) stock has a positive opinion of it. In fact, that analyst rates the stock a buy and has set a price target of $38.60 per share, according to TipRanks.
The biggest difference between Robinhood and Up Fintech are the markets in which they operate. Robinhood operates in the already heavily saturated United States market. However, the Chinese market is far less saturated, opening the door to even more compelling growth.
With a market cap of just over $250 million, MICT is the smallest company on this list. However, that speaks more to its undervaluation and the opportunity it poses to investors than to its abilities as a company. In fact, MICT has been firing on all cylinders as of late.
Most recently, the company announced that it will be launching an equities trading and wealth management mobile application in Hong Kong, the United States and China. However, the company isn't just making empty promises here.
Just last week, the company said that it received approval from the Hong Kong Securities and Futures Commission (SFC) to move forward with its trading platform. That's a tall order as Hong Kong SFC licensing isn't easy to come by. In fact, even Futu, a company valued at more than $22 billion, failed to receive approval from Hong Kong and had to go to New Zealand as a workaround.
So, having the license in place means that MICT has everything it needs to launch its securities trading and wealth management application, which it hopes will take place in the coming weeks.
Just before that announcement, MICT announced that it entered into a partnership agreement with the Shanghai Petroleum and Natural Gas Trading Center to facilitate the trading of commodities among the trading centers' large corporate and government customers.
Between the two, the company has the ability to quickly grow, becoming one of the leading trading platforms in Hong Kong and China.
However, MICT isn't a one-trick pony. The company is also becoming a key player in the insurance industry across greater China. The company recently acquired Beijing Fucheng Insurance Brokerage, Co, Ltd. which will allow it to greatly expand its insurance products, taking them from regional to national while offering up an incredible boost in margins.
All told, MICT is at a pivotal point in its growth, and things seem to be going in the right direction. In the very near future, the company could become a leading player in securities trading, commodities trading, wealth management and insurance across China and Hong Kong, making it a stock that's well worth your attention.
Fanhua is a bit of a middle man in the insurance space, with a main goal of connecting customers with one of the 83 Chinese insurance companies the company has partnered with. When it makes a connection, it earns a commission on a residual basis.
To date, the company has connected more than 10 million customers to its insurance partners, generating impressive revenues in the process. Moreover, Fanhua is seeing exceptional growth which is only expected to continue as the insurance market in China explodes.
Importantly, Fanhua is one of the first insurance agencies to pop up in the Chinese market. Prior to the launch of Fanhua, the vast majority of Chinese consumers worked with insurance companies directly. By consolidating offerings and providing consumers with multiple options, Fanhua has quickly become one of the leaders in the space.
Institutional investors tend to stay away from smaller companies, and with a market cap of around $800 million, Fanhua falls into that category. Nonetheless, institutional investors seem to love the stock, with 31% of the company being held by big money players.
Perhaps the institutional investors are seeing opportunity in the fact that Fanhua quickly became a leader in a largely untapped market and continues to grow at a rapid rate. Perhaps it's the fact that the company is already profitable and has set the stage for those profits to grow rapidly as well. No matter what it is, Fanhua is clearly one for the watchlist.
Huize Holding is very similar to Fanhua. The company operates an online insurance platform, acting as a matchmaker between consumers who are looking for insurance products and the companies that offer them.
While Huize is not yet profitable, the company is growing quickly, becoming a leader in the Chinese insurance market. In fact, it's becoming a choice one stop shop for health, life, property, and casualty insurance products.
While I like to see profitability when I invest, in many cases, tapping into companies that show leadership in emerging markets but haven't quite yet reached profitability is a recipe for tremendous gains.
The share ownership structure at Huize is also interesting. While only 2.9% of the company's shares are held by institutions, more than 23% is held by individual insiders, 17% is held by publicly traded companies and nearly 34% of the company is held by private companies. So, it's clear that there are plenty of big money players betting their investing dollars on the stock.
All told, if Huize Holding continues to gain share in the emerging Chinese insurance market, the potential for growth here is incredible, which makes the opportunity the company brings to the table hard to ignore.
Emerging markets investments are exciting - after all, wise investments in these spaces tend to yield incredible returns. China is one of the largest emerging economies in the world, and fintech is one of the fastest growing sectors within the Chinese economy. So, it's only natural that companies in this space can provide impressive opportunities to investors.
The companies above are those that I believe have the potential to become some of the biggest players on the field as the Chinese fintech sector continues to see rapid growth.
Disclosure: This author does not own any stock in any company mentioned herin. Please read all relevant disclosures at CNA Finance.
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