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Alibaba HK listing to attract more Chinese investors

Out of all the companies listed globally, Alibaba is already the 12th most widely held stock in long-only active strategies.

Alibaba Group recently announced a secondary listing of its ordinary shares on the main board of the Hong Kong Stock Exchange (HKEX), according to a statement from the firm.

A number of firms have been keeping a close eye on the listing, especially since Alibaba is already a widely held stock. Out of all the companies listed globally, the company is the 12th most widely held stock in long-only strategies, with nearly 15% of  6,000 funds holding the stock as of the end of the second quarter, according to data from Evestment.

Among all the companies listed in emerging markets, it is the second most widely held stock, the first being Taiwan Semiconductor.

Of all the 1754 SFC-authorised funds, there are 146 products which have Alibaba on the top 10 holding lists, according to FE Fundinfo data.

With the company’s new listing in Hong Kong, Eastspring Investments expects that more investors will be buying the stock, especially those in Hong Kong and mainland China.

“This secondary listing of Alibaba’s shares on the HKEX will allow retail investors in Hong Kong and more importantly in China (when the stock is eligible to be purchased via stock connect program) to invest in Alibaba,” Ken Wong, client portfolio manager of equities at Eastspring Investments, said in a client note.

“This is especially important because mainland Chinese retail stock investors haven’t been able to invest in US-listed stocks previously unless they had a QDII (qualified domestic institutional investor) license. With Alibaba listing in Hong Kong, this will allow for a lot more retail investor participation in the stock and potentially allowing for a higher valuation multiple going forward,” he added.

Wong also expects that with Alibaba listed in Hong Kong, there will be more passive buying of its shares given that some of the local Hong Kong and China benchmarks currently do not include Alibaba.

“So the company should attract more passive buying in 2020 from its inclusions into future benchmarks,” he added.

Timing of listing

In 2014, Alibaba intended to list in Hong Kong, but pulled out and opted for the US after the Hong Kong Exchange declined to give the ecommerce giant a dual share class listing, which would give senior management greater control of the company. But since then, the rules have been changed and dual share class structures are allowed.

“Over the last few years, there have been many encouraging reforms in Hong Kong’s capital market,” said CEO Daniel Zhang, in a statement.

The listing comes at a time when Hong Kong has slipped into recession and remains fragile due to six months of social unrest and increasingly violent protests that have hit the tourism and retail industries.

Alibaba was silent on the protests, but Zhang made an oblique reference to the situation in the statement: “During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright.”

Some other managers are finding opportunities in the Hong Kong equities market, which is actually up about 6% year-to-date. Matthews Asia, for example, believes that there is a value play among beaten-down Hong Kong stocks.

In addition, mainland investors have also poured in around $20bn in Hong Kong’s stock market in the last six months because of cheap valuations, according to a Wall Street Journal report, citing Wind data.

Part of the Bonhill Group.