China's suppressed crypto demand is spilling over into these stocks
China essentially banned cryptocurrencies years ago. Now that pent-up demand is finding an outlet in Hong Kong markets as local regulators eye the potential of stablecoins. Hong Kong-traded shares of Guotai Junan International nearly tripled in price Wednesday after becoming the first mainland Chinese-backed securities brokerage to obtain a license for virtual currency trading in Hong Kong . So many mainland-based investors bought the Hong Kong-listed stock that Guotai's total trading value ranked first on the exchange on Wednesday and Thursday, exceeding that of Alibaba, according to Wind Information. Guotai held onto second place on Friday, ceding the top trading spot to Xiaomi after its electric car launch Thursday night, the data showed. As a special administrative region of China, Hong Kong operates under different financial regulations and allows bitcoin trading. In late May, the region passed a stablecoin bill to formalize the process for financial companies to issue and manage virtual assets, primarily those that reference government-issued, or fiat, currencies. "We believe China's newfound interest in stablecoins is driven by concerns that legislation of U.S. stablecoins could extend dollar dominance," Morgan Stanley's Chief China Economist Robin Xing and a team said in a June 19 report. The People's Bank of China "is exploring HK as a sandbox for future payment alternatives," the firm said. While the analysts pointed out that Beijing has banned crypto transactions in mainland China since 2021 , PBOC Governor Pan Gongsheng's high-profile speech in mid-June "signals a pivot." Pan highlighted stablecoins and also noted how digital technologies have exposed weaknesses in traditional payment systems, the Morgan Stanley analysts pointed out. A growing trend among companies Other Chinese companies are jumping onto the trend. Hong Kong-listed financial services firm China Renaissance announced Thursday it plans to spend $100 million over the next two years to invest in cryptocurrency assets and to develop its business in the related Web3.0 realm. On the same day, the company also announced that Frank Fu, a former CEO of crypto exchange Huobi Americas, would join China Renaissance as an independent non-executive director . China Renaissance, also known as CR Holdings, saw its shares gain 20% last week. In the mainland, where stock trading is subject to more price restrictions, Shanghai-listed TF Securities saw gains of nearly 29% last week after it confirmed to investors Friday its wholly-owned subsidiary, TF International, also obtained a license in Hong Kong for virtual assets trading. TF Securities and popular financial information and brokerage company Eastmoney saw the largest turnover by share volume and price last week on the mainland exchanges, according to Wind data, although Eastmoney did not share any virtual assets-related business updates. Its stock climbed by about 11% in the last week. Watch for the drivers behind shares' recent surge The leap in Guotai shares over the past week reflects the market's positive expectations for stablecoin business, Li Dongfang, a Beijing-based finance blogger, said in Chinese, translated by CNBC. But the stock price surge is due more to investors pursuing emerging themes and following first-mover advantage, rather than a reflection of new business growth, Li said. He expects more brokerages to also get similar approvals for virtual asset business, and not see such large fluctuations in stock prices. Part of Beijing's impetus for banning crypto trading was an effort to control financial risks. Speculation takes on a different form with a population of 1.4 billion people. However, the macro trend is clear, if not accelerating. The New York-founded cryptocurrency conference Consensus expanded to Hong Kong this year with its first event in the region in February. Another Consensus event is planned for Hong Kong next year. Recent Chinese business news reports have also scrutinized the potential for stablecoins in Chinese sales of goods overseas via online platforms. They have also highlighted how a unit of Chinese e-commerce company JD.com, along with Standard Chartered, are among those officially participating in Hong Kong's stablecoin project. "For China, ignoring this trend risks being left behind in the digital infrastructure race – especially as stablecoins increasingly function as bypass mechanisms to traditional banking networks," the Morgan Stanley analysts said.
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