Alibaba could join the Stock Connect cross-border trading mechanism as early as September 9, after its dual-primary shares listing in Hong Kong is completed, according to Morgan Stanley. The overall impact on the market is expected to be limited, however, after an initial influx of money from mainland investors, they said.
The percentage of mainland ownership is likely to stabilise around the low teens in the long run, they added.
“We expect some inflows but not major,” they wrote.
Alibaba owns the South China Morning Post.
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If approved, the completion of the listing process at the end of August implies that the first day of so-called southbound trading could be as early as September 9, the US bank said. The southbound channel of the Stock Connect programme refers to the buying and selling of shares in Hong Kong by mainland investors.
Southbound trading has become a major pillar of the city’s market since the launch of the Stock Connect scheme in 2014, as mainland investors deploy money to Hong Kong in search of diversifying their investments.
Onshore investors have ploughed US$36.3 billion into the city’s stock market so far this year, taking the net buying of local shares to over US$400 billion (HK$3 trillion) as foreign investors retreat, according to data compiled by Goldman Sachs.
The inclusion in Stock Connect could potentially provide some liquidity and valuation support to Alibaba, whose Hong Kong-listed shares have been lagging the broader market so far in 2024.
Still, more recent market dynamics suggest there are reasons to be cautious about southbound inclusion, Morgan Stanley said. Mainland investors’ appetite for large-cap internet stocks might have already waned, as suggested by the weak fund flows into peers like Tencent this year, the analysts said.
There has been a major shift in the direction of southbound flows from internet companies to financials and telecoms, as mainland investors prioritise stable cash returns from industries with high dividend yield, they said.
“Southbound’s incremental support for liquidity and turnover could be limited,” Wang wrote in the note.