eCapitalist targets ethnic Chinese investors worldwide

Online broker seeks to cash in on the network of wealthy overseas Chinese.

With online stock trading websites a dime a dozen, brokers are faced with the challenge of differentiating their service. Some sell themselves on their research, some promote their old-world reliability, while others sell themselves on access to the most markets worldwide.

And now one company is getting culturally specific. eCapitalist bills itself as a community-centered, online brokerage site, developed by Chinese-Americans to meet both the financial and cultural needs of the ethnic Chinese.

“We’ve looked at a business model that capitalizes on the ethnic Chinese appetite for investment, gambling and speculation,” says executive vice president Irene Ho.

But that doesn’t mean eCapitalist has online card games or mahjong. Instead the company is betting on a simple website design, a sense of community, and access to key stock markets in Greater China as well as the US to attract its target market.

eCapitalist was originally set up in the US with the acquisition of a small brokerage firm called Farsight Financial Services from investment bank DE Shaw. The company is also a licensed broker dealer in Hong Kong and is in the process of acquiring a seat on the Stock Exchange of Hong Kong.

“It’s the comfort that you want to acquire,” says Ho of the move to become an exchange participant. Many online brokers, even some that are part owned by large financial institutions, don’t view membership as a necessity. “We don’t have any problems dealing through our executing brokers,” she says. “But you can’t really control their system if anything goes wrong”

Taiwan is the next market the company plans to offer, but due to restrictions in the market there it will do so through a partnership with Prime Asia Securities.

“A lot of the Chinese in the US are originally from Hong Kong and Taiwan and have a very strong interest in maintaining some investments in these two markets,” says Ho.

And it works in reverse. Many people in Hong Kong and Taiwan have studied or worked in the US and have returned to Asia to live. Ho says these people also have a very strong interest in investing in the US market. “In our game plan we see that Hong Kong/China, Taiwan and the US form a triangle for us,” she says.

With WTO there’s the eventual possibility of China’s stock market becoming available to overseas Chinese through the internet. But how would a company called eCapitalist go down with financial regulators from the Communist Party? A hypothetical question perhaps, but one that the company might have to deal with if their concept is taken to its logical conclusion.

Chinese chat

Ian Wenham, director of research at Lehman Brothers, isn’t certain that all areas of the ‘culturally targeted broker’ concept make sense. “In terms of affluent overseas Chinese in the US, you’d expect that they would be reasonably comfortable with the internet and would expect to get better service and information from one of the larger US brokers,” he says. But he does admit that offering access to markets back home might be enticing for some overseas Chinese.

“For people in Hong Kong or Taiwan having community chat rooms in Chinese, talking about US stocks, is also perhaps an opportunity.”

eCapitalist has maintained a fairly low profile since the launch of its Hong Kong website in mid-October. Ho says this was a deliberate decision based on the fact that trading in US stocks for Hong Kong residents will be available only in the next few weeks, and also due to uncertainty about the popularity of online trading in Hong Kong.

“We feel very strongly that even though some of our competitors are spending tens of millions of dollars on advertising and marketing, they’re not really doing any better than the rest. We don’t think anyone has a good idea exactly what the push button is to make the conversion happen,” says Ho of the relatively slow uptake of online trading in Hong Kong – particularly with regard to local stocks.
“The logical way to handle the situation is to preserve your capital, watch a little bit and try to gauge what will be the conversion factor.”

The short history of online trading is partly driven by technology, and also, says Wenham, deregulation of commissions. “If there is a financial incentive to trade online rather than by phone, people are more likely to do so.”

With deregulation in Hong Kong seen as inevitable, as soon as smaller brokers give up their protests, that theory will likely be put to the test. As will the brokers, large or small, who are trying to find what Chinese retail investors want.

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