Wells Fargo Comments On Chinese Brokerage Explosions From 100K/Day In 2014 To 1MM/Day In 2015

In a report published Monday, a team of Wells Fargo analysts discussed the implosion of Asian brokerage accounts over the past year, specifically in China. According to the analysts, Interactive Brokers Group, Inc. IBKR is "unlike all other e-brokers" under the firms coverage as it has a "considerable" presence in Asia. In fact, the continent has proven to be a source of "significant" growth as new account openings in the continent have "far outpaced" account openings in the U.S. and Europe. Nevertheless, the analysts noted they have "concerns" for Interactive Brokers given the "sharp" declines seen in the Chinese stock market recently. Over the past year, new broker account openings in China have surged from under 100,000 per day to "levels well above" one million on certain days. In fact, for the week of May 29 alone, new account openings in China totaled over 4.4 million. "With expectations for Interactive Brokers running high, even modest disappointments in account growth could result in near-term volatility for the stock," the analysts warned. "With the Shanghai index down by 25 percent since June 12, we have concerns about lasting negative consequences." The analysts did note that they have no specific data on the number of accounts Interactive Brokers opened in China and the country's overall contribution to the firm's Asian operations. However, they do know that the company's accounts in Asia rose nearly 40 percent during the last year, marking a "rapid" growth rate that parallels the "heightened" activity in China. Despite the cautious tone, the analysts speculated that Interactive Brokers will maintain a best-in-class growth even if Asian activity were to "materially" slow and each 10 percent decline in the region's revenue will result in a two percent consolidated revenue dip. "In the grand scheme of things this seems quite manageable, but such a slowdown could prove disappointing versus investor expectations," the analysts concluded.