Nanhua cleared to ride heightened market volatility to Hong Kong IPO

The Shanghai-traded futures company is seeking a second listing at a time when growing economic uncertainty may lead to greater demand for its services

Key Takeaways:

• Nanhua has been approved by Chinese regulators for a Hong Kong IPO to supplement its current Shanghai listing
• The new share offering would come as the futures company steps up its overseas expansion to meet demand from Chinese businesses going global

By Warren Yang

When economic uncertainty abounds like it does now, businesses and investors alike typically increase the use of financial instruments to protect against wild fluctuations in the values of their assets. That can be good for business at financial derivatives specialists like Nanhua Futures Co. Ltd. (603093.SH), generating more demand for its services — and helping the company attract investors as it seeks a second listing in Hong Kong.

Late last month, Nanhua received approval from the China Securities Regulatory Commission (CSRC) to go public in Hong Kong to supplement its current listing in Shanghai. The company says it will use most funds from the new listing to expand its global operations.

Among other things, it plans to set up a new base in Malaysia, and to increase the capital bases of its British, American and Singaporean operations for future growth in Europe, the U.S. and Southeast Asia, respectively, according to the company’s Hong Kong prospectus filed in April. That document will expire later this month, meaning Nanhua will need to file an updated prospectus for the listing to proceed.

Founded in 1996, Nanhua is one of the oldest futures company in China. Citing third-party research, it says it is the country’s largest futures brokerage not affiliated with a financial group in terms of both revenue and commission income from futures brokerage services. And notably, the company touts that it generates the most overseas revenue among all futures companies in China.

Nanhua began to build its overseas businesses in 2006 to provide its customers with round-the-clock cross-border services spanning Asia, North America and Europe, with branches in Hong Kong, Chicago, Singapore and London. The push stemmed partly from growing competition at home, but also strategically targeted Chinese companies that were expanding overseas and needed to hedge associated risks, like uncertainty around future movements in foreign-exchange rates and commodity prices.

Other Chinese providers of various services, from banking to cloud and telecoms, have made similar moves abroad to serve their domestic customers as they expand globally.

Nanhua’s international campaign is yielding some meaningful contributions to the company. Its net commission and fee income from overseas futures services increased more than 45% to 145.7 million yuan ($20 million) last year from 2023, while the same type of revenue in China shrank by more than a quarter to 300 million yuan. From 2022, the company’s net commission and fee income from overseas futures services nearly doubled.

Consequently, Nanhua’s overall operating income from overseas financial services, which also include asset management, and securities and leveraged foreign-exchange trading, accounted for more than 11% of its total operating income for last year, up more than 2 percentage points from 2023 and 8 percentage points from 2022.

Growth in Nanhua’s international businesses appeared to accelerate further this year. While it didn’t provide a breakdown for its overseas revenue in its latest midyear report filed to the Shanghai Stock Exchange, it disclosed a 32% year-on-year increase in overseas client equity, or cash deposited by its brokerage clients for trading purposes, for the first half of this year, far faster than 10% growth for all of last year.

Risk management

The ongoing overseas expansion is still a work in progress as Nanhua continues to generate the bulk of its revenue at home. Contrary to what its name seems to indicate, futures brokering isn’t actually the company’s main income source. Instead, most of its revenue comes from domestic risk management services, which carry risks for Nanhua.

Nanhua’s risk management business essentially hinges on trading techniques. For example, the company offers its customers over-the-counter (OTC) derivatives like options, swaps and forwards for fees to protect them against changes in asset values. Then, Nanhua needs to hedge those contracts by continuously engaging in its own trading of their underlying assets. When all goes well, Nanhua avoids losses or even makes profits.

But when things go awry, which becomes more possible when markets move unexpectedly, the company can end up with large losses. Also, these services expose Nanhua to credit risks as its customers may not honor their obligations for their derivatives contracts.

The company’s net gains from trading decreased each year from 2022 to last year, and so did its operating income from its risk management services, pulling down its total revenue. This indicates growing challenges in navigating increasingly volatile markets amid geopolitical blowups and Donald Trump’s tariff threats.

So, greater volatility is both a gift and a headache for Nanhua. Demand for the company’s futures brokerage services may increase, but it also becomes harder to make profits from the risk management business due to all the uncertainty.

When times get tough, customers may also opt to hunker down and scale back the parts of their businesses that rely on commodities or foreign currencies with high degrees of price volatility, instead of taking on risks that can require protection through services of companies like Nanhua.

Yet Nanhua is profitable and managed to grow its profit 14% to 403 million yuan last year despite a fall in its revenue. Its revenue continued to drop year-on-year in the first half of 2025, but that was because it now needs to recognize revenue for its risk management business on a net basis, as opposed to a gross basis, under new rules that took effect at the start of this year. Its net profit actually increased slightly during the six-month period.

Nanhua’s Shanghai-listed shares have gained a whopping 87% this year to trade at a price-to-earnings (P/E) ratio of almost 30, higher than 20 for rival Ruida (002961.SZ), though lower than 41 for rival Yongan (600927.SH).

Nanhua can be a convincing story for international investors in Hong Kong as a company that can rather uniquely benefit from the increasing unpredictability of the world economy. Its increasingly global footprint could also give it an edge over its Chinese rivals. But the company itself certainly is not without a risk due to its direct involvement in derivatives markets that may remain bumpy for some time.

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