Alibaba Wants to Move Its Stock to Hong Kong. It’s Just the Beginning for Chinese Shares Listed in the U.S.
Alibaba says it has filed to change its primary stock listing to Hong Kong rather than the U.S.
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Alibaba Group Holding on Tuesday said it has filed to change its primary stock listing to Hong Kong, rather than the U. S.—a move other Chinese companies could pursue as the threat of delisting Chinese companies in the U.S. persists.The Holding Foreign Company Accountable Act, which created a framework for the Securities and Exchange Commission to ban trading in Chinese companies not in compliance with auditing and disclosure standards by 2024, has loomed over U.S.-listed Chinese stocks since its passage in late 2020.
The ADR-heavy Invesco Golden Dragon China
exchange-traded fund (ticker: PGJ) has lost 39% over the past year, compared with the 30% decline in the broader iShares MSCI China ETF (MCHI).
Most fund managers have been swapping to Hong Kong-listed shares as more Chinese companies sought secondary listings. Analysts have expected the majority of the larger 250-plus Chinese companies that trade in the U.S. would pursue secondary or primary listings in Hong Kong, cushioning the near-term blow from a U.S. delisting if they failed to comply with the disclosure requirements.
Chinese regulators in recent months have signaled they were open to some sort of compromise with the Public Company Accounting Oversight Board, with analysts noting some willingness to make concessions by allowing full audits of select companies in the next couple months. But the U.S. has indicated it isn’t backing down, with a bipartisan push to make a stronger stance against China, and Congress debating whether to shorten the window for compliance to two years rather than three. In July, SEC Chairman Gary Gensler threw cold water on the chances of reaching some agreement, telling reporters he wasn’t confident a deal would be reached.In a note to clients, Citigroup analyst Alicia Yap called the move positive given the continued overhang on ADRs from the threat of delisting. A smooth transition to the new primary listing could pave the wave, Yap says, for other companies that already have dual listings. That includes companies like JD.com (JD) and NetEase (NTES). If Hong Kong becomes Alibaba ’s primary listing, mainland investors would eventually be able to buy its shares through the Stock Connect system. Up until now, mainland Chinese investors haven’t been able to buy stock in many of these household names that dominate their lives. “We view this as an important sentiment shift to attract more capital and liquidity to Alibaba and other China Internet stocks over time,” she said.For comparison, Tencent Holdings (700. Hong Kong) is currently the largest stock position held by mainland investors, who own 7% of the company’s outstanding shares, via the Southbound Stock Connect system, according to Brendan Ahern, chief investment officer of KraneShares. Assuming a similar ratio for Alibaba’s Hong Kong shares, Ahern says that would represent significant inflows into the stock.
The listing could begin to dissipate one of the clouds over Alibaba’s shares, but concerns about China’s economic slump and increasing geopolitical concerns around Taiwan and Beijing’s support for Russia still loom.
Write to Reshma Kapadia at [email protected]
