Client assets remain resilient after regulatory disruption, with trading revenue expected to rebound quarter over quarter

Overview

The report assesses Futu's client base, asset retention, and trading activity after regulatory changes in Mainland China. CCASS data show that Futu clients' Hong Kong equity holdings outperformed the total market capitalization of the Hong Kong market both in the second quarter of 2026 and during the key window after regulatory adjustments, indicating that the client base remained stable and may have achieved modest market share gains. Meanwhile, improved turnover in the Hong Kong and U.S. markets and gains in U.S. equities are expected to drive a quarter-over-quarter recovery in core trading revenue. Since the third quarter, client holdings have underperformed the Hong Kong market, mainly due to price corrections and outflows in leveraged memory-chip ETFs, but client concentration in the relevant ETFs has already declined significantly.

Core views

First, regulatory adjustments did not cause a clear loss of momentum in client assets relative to the market; the decline in Futu holdings was smaller than the broader market, and the client base and market share performed steadily. Second, stable Hong Kong client assets, rising U.S. equity indices, and growth in average daily turnover in Hong Kong and the U.S. jointly support a quarter-over-quarter rebound in core trading revenue. Third, the decline in client holdings since the third quarter was mainly dragged down by a small number of leveraged memory-chip ETFs, rather than a broad deterioration in the client base. Fourth, the decline in the share of relevant ETF holdings indicates that concentration risk is easing, but market volatility, regional competition, and monetization of the Japan business remain key uncertainties.

Analysis framework

The report uses CCASS-disclosed data on clients' Hong Kong equity holdings as the core basis, compares changes in Futu client assets with the total market capitalization of the Hong Kong market over the same period, and combines average daily turnover in Hong Kong and U.S. markets, performance of major U.S. equity indices, and changes in key ETF holdings to assess client retention, trading velocity, and revenue trends. Valuation uses a combined DCF and P/E methodology, with probability weighting applied to base, bull, and bear scenarios.

Methodology notes

• Valuation methodsCombined DCF and P/E valuation

  Combination of absolute and relative valuation

  Cross-assesses long-term growth, profitability, and market pricing through discounted cash flow and price-to-earnings methods, forming a blended target price.

• Scenario analysisProbability-weighted scenario analysis

  Weighted base, bull, and bear scenarios

  The base, bull, and bear scenarios carry weights of 60%, 30%, and 10%, respectively; the weighting tilt reflects confidence in the sustainability of long-term growth and current client trading velocity.

• Operating analysisCCASS client holdings benchmarking

  Client assets' relative market performance

  Compares changes in the value of Futu clients' Hong Kong equity holdings with changes in the total market capitalization of the Hong Kong market over the same period to assess client asset resilience and potential market share changes.

• Financial forecastingMorgan Stanley ModelWare

  Institutional financial forecasting framework

  Unless otherwise specified, the report's financial metrics are based on the Morgan Stanley ModelWare framework; data marked as research forecasts are estimated by Morgan Stanley Research.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• FUTU.US

  Core covered security

  Strengths

  The decline in client Hong Kong equity assets was smaller than that of the overall Hong Kong market, and the client base remained resilient after regulatory changes; improved trading activity in Hong Kong and the U.S. supports potential long-term growth and cross-market expansion.

  Weaknesses

  Revenue and client assets are sensitive to market conditions and trading velocity, while the paid conversion and monetization path of the Japan business remain to be proven.

  Comparison

  In the second quarter of 2026, client Hong Kong equity holdings declined 2.6%, outperforming the 5.7% decline in the total market capitalization of the Hong Kong market; they also outperformed the broader market during the key window after regulatory changes.

  Risks

  Sharp corrections in Hong Kong and U.S. markets, regulatory tightening, intensified competition in Hong Kong and Singapore, excessive concentration in key product holdings, and weaker-than-expected monetization in Japan.

• CSOP 2x Samsung ETF

  Futu client concentrated holding and risk transmission asset

  Strengths

  Futu clients' share in this ETF has declined from about 30% at the end of the second quarter to 14%, significantly easing concentration risk.

  Weaknesses

  The leveraged structure amplifies the impact of price volatility and fund outflows on client asset value.

  Comparison

  As of August 7, 2026, client holdings had decreased by HK$7.7bn from the end of the second quarter.

  Risks

  If the related stocks continue to correct, they may still weigh on client asset size, trading sentiment, and risk metrics.

• CSOP 2x SK Hynix ETF

  Futu client concentrated holding and risk transmission asset

  Strengths

  Futu clients' share has declined from 23.6% at the end of the second quarter to 15%, indicating that concentration is falling.

  Weaknesses

  Holding value is highly sensitive to SK Hynix's share price, leverage decay, and ETF fund flows.

  Comparison

  As of August 7, 2026, client holdings had decreased by HK$19.6bn from the end of the second quarter, making it the main source of the recent decline in client holdings.

  Risks

  A further pullback in the memory-chip sector or continued ETF outflows could further depress the value of Futu client assets.

Key data

• Client Hong Kong equity holdings in 2Q 2026Down 2.6% quarter over quarterThe total market capitalization of the Hong Kong market fell 5.7% quarter over quarter over the same period, indicating that Futu client assets were more resilient.
• Client holdings after regulatory changesDown 7.3% from 2026-05-22 to the end of the second quarterThe total market capitalization of the Hong Kong market fell 9.1% over the same period, suggesting Futu may have achieved modest market share gains.
• Average daily turnover in the Hong Kong marketExpected to increase 5.0% quarter over quarterImproved trading activity is favorable for brokerage and trading revenue.
• Average daily turnover in the U.S. marketExpected to increase 6.6% quarter over quarterMay reflect improved trading velocity among Futu clients.
• Performance of major U.S. equity indicesUp 15% to 20% in the second quarter of 2026Rising asset prices and trading activity jointly support a quarter-over-quarter recovery in core trading revenue.
• Client holdings since the third quarterDown 1.0% quarter over quarter as of the report's observation periodThe total market capitalization of the Hong Kong market rose 8.6% over the same period, with the difference mainly attributable to corrections and outflows in certain leveraged memory-chip ETFs.
• Change in CSOP 2x SK Hynix ETF holdingsDown HK$19.6bn from the end of the second quarterAs of August 7, 2026, this was one of the main sources of the decline in client holdings value.
• Change in CSOP 2x Samsung ETF holdingsDown HK$7.7bn from the end of the second quarterAs of August 7, 2026, together with the SK Hynix-related ETF, it explained most of the decline in holdings.
• Client share of Samsung leveraged ETF14%Down from about 30% at the end of the second quarter of 2026, indicating a significant easing in concentration.
• Client share of SK Hynix leveraged ETF15%Down from 23.6% at the end of the second quarter of 2026, indicating some reduction in concentration risk.
• Target price and upsideUS$177.00; 62%Based on the closing price of US$109.02 on August 7, 2026.
• Base-case DCF assumptionsDiscount rate 15.5%; perpetual growth rate 4%The base case carries a 60% weight in the probability-weighted valuation.
• Bull-case assumptionsAverage earnings growth of 36% from 2026 to 2027; 2026E P/E of 21xThe bull case carries a 30% weight.
• Bear-case assumptionsAverage earnings decline of 5% from 2026 to 2027; 2026E P/E of 9xThe bear case carries a 10% weight.

Impact & implications

More resilient client assets relative to the market imply that the marginal impact of regulatory tightening on Futu's client base may be lower than feared and could bring modest share gains. Increased turnover in Hong Kong and U.S. markets and rising U.S. equities are expected to improve trading commissions and related revenue. The underperformance of third-quarter holdings relative to the market is mainly concentrated in a small number of leveraged ETFs, and concentration has declined, so signals of systemic client outflows are limited. However, if Hong Kong and U.S. markets undergo a sharp correction, regulation tightens further, or regional competition intensifies, the current revenue recovery and valuation upside thesis could still be impaired.

Risks

• A sharp correction in U.S. or Hong Kong equity markets could depress client assets and weaken trading activity.
• Further tightening of relevant Mainland China regulation could have a greater impact on client acquisition, asset retention, or cross-border trading.
• Paid-client conversion and monetization speed in the Japan market could be below expectations.
• Intensified competition in the Hong Kong and Singapore markets could pressure market share or fee rates.
• Client holdings could become concentrated again in high-volatility or leveraged products, amplifying asset value and risk management pressure.
• The bull-case valuation depends on long-term growth and high trading velocity; if earnings growth falls short of expectations, valuation multiples may contract.
• Morgan Stanley has disclosed shareholding, service, or potential investment banking relationships with Futu Holdings Ltd, and investors should make judgments in conjunction with other independent information.

What to watch

• The subsequent performance of Futu clients' Hong Kong equity holdings relative to the total market capitalization of the Hong Kong market.
• Average daily turnover in the Hong Kong and U.S. markets and Futu clients' trading velocity.
• Whether quarterly core trading revenue can achieve the expected quarter-over-quarter rebound.
• Client holding amounts and concentration in the CSOP 2x Samsung ETF and CSOP 2x SK Hynix ETF.
• Clients' trend of increasing allocations to artificial intelligence-related stocks and large internet stocks.
• Progress in Japan user acquisition, paid-client conversion, and a clear monetization path.
• The pace of client adoption of crypto assets and their potential revenue contribution.
• Competitive dynamics in the Hong Kong and Singapore markets and changes in Futu's market share.
• Further changes in Mainland China's regulatory policies for cross-border securities business.