Chuck Looks Beyond The U.S. For Growth Opportunities

by Trefis Team
Charles Schwab
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Facing lower trading activity in the U.S., Charles Schwab (NYSE:SCHW) is looking to expand its global capabilities with the launch of Schwab Global Account. The new platform will provide investors access to 12 highly liquid equity markets outside the U.S. [1]

Customers using the platform will be able to trade global stocks free of commission in markets in Australia, Belgium, Canada, Finland, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway and the United Kingdom, whenever they are open.

Our price estimate for Schwab is $14, in line with the current market price.

See Our Full Analysis for: Charles Schwab | Ameritrade | E*TRADE Financial

The venture might help Schwab revive investor confidence, which has been hampered by the slow recovery of the U.S. economy. In July, the online brokerage’s Daily Average Revenue Trades (DARTs) fell 2% year-on-year. Although the decline seems small, it must be noted that the company observed some inorganic growth due to the acquisition of brokerage firm, OptionsXpress Holdings Inc., in the third quarter of 2011. The general trend observed by the industry can be gauged by the metric revealed by peers E*TRADE Financial (NASDAQ:ETFC) and Ameritrade (NYSE:AMTD). E*TRADE reported a 11% year-on-year fall in DARTs in July, whereas the decline for Ameritrade was 9%.

Providing access to stocks that are not available via American Depositary Receipts (ADRs) or the U.S. over-the-counter (OTC) market, Schwab Global Account is a very lucrative alternative to the recovering U.S. equity market. A recent survey conducted by Charles Schwab revealed that 73% of its customers are interested in global investing while 41% might explore the possibility of investing in equities on foreign exchanges in the next year. Of the surveyed participants, 35% believed that investments outside the U.S. offer better growth opportunities than those in the U.S.

By providing the facility to trade equities in local currency, the platform also allows investors to hedge their exposure to fluctuations in the U.S. dollar. Despite the recent trend, we maintain a positive outlook for Schwab’s trade volume, our current forecast accounts for steady growth in the next few years as markets recover. There is, however, a potential downside of 10% to our price estimate, should the annual average number of trades per account fall to around 8 by the end of our forecast period, 2019.

You can gauge the impact of a change in forecasts, by modifying the charts above.

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  1. Schwab Goes Global: New Platform Gives Investors Direct Access to 12 Non-U.S. Markets , Press Release, 12th September, 2012 []
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