The new designation would qualify Alibaba’s shares for the Stock Connect cross-border investment channel when the exchange operators of Shenzhen and Shanghai convene on September 5 to review what to add into the programme. Alibaba, one of China’s largest technology behemoths with HK$1.58 trillion (US$202.7 billion) in value for its Hong Kong listing, would be very likely to make the cut, clearing the way for mainland investors – those with at least 500,000 yuan (US$70,089) in assets – to take their first bite of the stock on September 9 the earliest.
“It will bring a tailwind to Alibaba’s shares for sure, and inject liquidity” into the stock, said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “It does make a huge difference in terms of whether stocks can be traded through the Stock Connect.”
The journey to New York and back on China’s doorstep was 10 days shy of a decade in the making. Alibaba’s founders had long rued the fact that the company that earns most of its revenue from China could not share its capital gains with the nation’s legion of stock investors.
The connect programme was introduced in 2014 and has developed into a popular conduit for Chinese investors seeking to diversify their domestic investments. Global investors are also able to dip into China’s US$8.2 trillion stock market via the so-called northbound channel of the scheme.
China’s retail stock investors, whose numbers surpass the memberships in the Communist Party, do not have access to the shares of many Chinese companies listed offshore, until their inclusion in the connect scheme. Besides Alibaba, online retailer JD.com and search engine Baidu are yet to join Connect. Tencent, delivery giant Meituan and appliance-to-smartphone maker Xiaomi are already accessible via the scheme.
Alibaba has risen 8 per cent in Hong Kong this year, at a fraction of Tencent’s 29-per cent gain, partly due to the lack of backing by home-market investors. Alibaba’s shares are also cheaper, trading at 9.7 times estimated earnings compared with Tencent’s 15.8-times multiple.
A rising Alibaba stock could also lift the Hong Kong market, as the stock is the third-biggest component of the 82-member Hang Seng Index, with an 8.1-per cent weighting, behind HSBC and Tencent. Its American depositary receipts are valued at US$202 billion, the equivalent of the Hong Kong listing, Bloomberg data showed.
Alibaba’s effort to make its way into the Stock Connect is a sign that the company has doubled down on its returns on shareholders beyond its US$65 billion share buy-back plan, according to Qin Heping, an analyst at Guotai Junan Securities in Shenzhen.
“It’s progressing smoothly,” said Qin. “That’ll improve liquidity and serve as a fresh catalyst for the stock.”