What would Amazon’s stock price be if US retail investors were banned from investing? Lower, doubtless. The thought experiment shows that Alibaba’s 2014 listing in New York was doubly impressive. The world’s largest-ever listing depended on foreign investors.
This year, mainland China’s legions of retail investors should get the chance to invest. For Chinese tech groups, local price support should be very welcome.
Alibaba is applying for a primary listing in Hong Kong. The shares already trade there via a secondary listing, but this bars mainland investors from taking part.
The listing, which is expected by the end of this year, would take advantage of a flexible definition of dual primary listings from the Hong Kong Stock Exchange. This permits businesses to list fully in the city while keeping a US primary listing.
To qualify, they must be “innovative” Chinese companies and include variable interest entities (VIE). These offshore structures give foreign investors access to shares in Chinese companies — albeit with a debate over the legal title to assets.
Alibaba’s primary listing in Hong Kong will include its shares in the Stock Connect link with the Shanghai and Shenzhen exchanges. Mainland retail investors have historically been exuberant buyers of stocks that are household names. They are a formidable force in Chinese investment, accounting for around 85 per cent of daily turnover.
They should provide significant underpinning to Alibaba shares, in which fraught Japanese tech group SoftBank is a big investor. The stock has fallen two-thirds from its 2020 peak amid government crackdowns, trading at just 14 times forward earnings. That is less than a fifth of the valuation of Amazon.
If Alibaba’s Hong Kong listing is a success, other China tech groups could follow its lead. Most Chinese companies currently listed outside of the country use the VIE structure, including tech giants Baidu and Pinduoduo. The latter has fallen more than 70 per cent from last year’s peak, reflecting US threats to delist Chinese stocks. Tech groups now need a loyal investor base and improved liquidity closer to home.