Retail trading boom sparks 500%-plus rally in small German brokers

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt
FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 17, 2021. REUTERS/Staff/File Photo

February 18, 2021

By Danilo Masoni

MILAN (Reuters) – The retail trading boom has fired up the stocks of some small German brokers, including one run by around 50 people, which reported a 10-fold rise in annual profit after an almost similar jump in its share price in less than a year.

From being among the smallest players by market capitalisation in its field to boasting a 1,200% rise in its shares, Lang & Schwarz is the latest example on how lockdown boredom and high savings rates in Europe have triggered a surge in stock investing by non-professionals.

The hype around the record breaking run in bitcoin and Wall Street darlings like Tesla, or the Reddit-fuelled surge in GameStop and cannabis stocks in 2021, has given another impulse to the boom driving meteoric gains in Lang & Schwarz, as well as Tradegate and Baader Bank since March 2020.

Germany, the most populous country in Europe and where financial literacy is high, has emerged as a hot spot for fund managers investing in the sector’s stock.

“We haven’t seen such a boom since the end of the 1990s,” said Roger Peeters and Christoph Frank, executive partners at pfp Advisory in Frankfurt, which holds a stake in Lang & Schwarz.

“In Germany there are a number of companies from platforms to stockbrokers and focused banks which could gain a lot of profit from this development. The crucial question is: how sustainable is the development?,” they added.

After initially surging on Thursday Lang & Schwarz shares saw some profit taking. The stock however remained 7% below the record close marked earlier this month. Shares in Baader Bank, a market maker and brokerage, and Tradegate, a retail bank and trading firm, also eased after rising around 850% and 500% respectively from March lows.

“A big part of the success of these companies is tied to an explosion of volumes in 2020/2021 due to the pandemic and the large liquidity on markets,” said Michele Pedroni, senior portfolio manager at DECALIA in Geneva.

Baader Bank saw accounts on its trading platform more double in 2020 and is upbeat on this year, while Tradegate more than doubled its dividend after pre-tax profit jumped 568% last year.

Online broker Sino, whose shares have soared nearly six-fold from March, has recorded a further improvement of trading activity in January after orders processed in the three months to December rose 177%.

Lang & Schwarz said late on Wednesday that in January it managed 6 million trades, a record monthly number that was also higher than the volume it handled in all of 2019.

Pedroni said that beyond the pandemic’s short-term volume boost, some of these platforms have earned new clients and that should represent a benefit over a longer time frame.

Meanwhile, Lang & Schwarz, cautioned that there were no assurances this trend would continue throughout 2021.

But the ongoing buzz prompted Credit Suisse to upgrade Deutsche Boerse to “outperform” citing among other reasons the activity in Tradegate, in which the stock market operator has a stake.

“Increased retail trading participation for Tradegate even brings a growth story to (German share trading platform) Xetra”.

Graphic: Trading boom – https://fingfx.thomsonreuters.com/gfx/mkt/oakveremwpr/Trading%20boom%20winner%20is.PNG

(Reporting by Danilo Masoni; editing by Thyagaraju Adinarayan and David Evans)