IG bets on volatility and China

IG Group, the spread-betting firm, is attempting to launch in China through a joint venture with one of the domestic Chinese banks.

Tim Howkins, chief executive, said the company had been in talks with several Chinese banks for a number of months.

The disclosure came after the group unveiled a 63pc jump in first half pre-tax profits to £48.2m, after benefiting from market volatility. But IG’s shares dropped 8pc – the biggest fall in 18 months – to 360½p amid fears that its international expansion is costing too much. New offices in Paris and Madrid saw administrative costs rise to £40m – 10pc more than analysts expected.

Mr Howkins told The Daily Telegraph he hoped to establish a presence in two key markets – China and Japan. The Japanese plans are “still just at the research stage” and “to move into China you really have to get into bed with one of the local banks”, he said. “We’re talking to them [Chinese banks] and have been for some time. But it is still too early to say whether anything will come from that.”

The typical customer is a 37-year-old male professional who works outside the City, Mr Howkins said. The growing power of compliance departments amid fears of insider trading had impinged on the group’s ability to recruit employees of City institutions as customers.

Over the last quarter there were 1,900 new spread-betting accounts and 1,400 contract for difference trading accounts opened each month. Trading on performance of stock market indices accounted for about 30pc of its revenues. Bets on individual company shares contributed about 40pc.

There was a slight shift away from foreign exchange trading towards index trading, which he attributed to volatility of company shares.

On September 14, the day Northern Rock’s troubles emerged, one-third of the group’s revenues came from bets on the direction of troubled bank’s stock. “We do benefit from market volatility – our customers like to trade around news. But in the past two years we have tripled the number of our spread-betting customers and quadrupled the number of CFD (contracts for difference) trading accounts.

”That customer growth is where the long-term growth of this business will come from,” Mr Howkins said.

IG raised its first-half dividend by 50pc to 3p a share, payable on February 28.

Tags: China, IG Index, igindex, Tim Howkins

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