On Wednesday ( August 28 ), Alaba Group Holding will complete its long-awaited transition from secondary status on the Hong Kong Stock Exchange to a primary listing. The walk might be just as significant for the area as the e-commerce giant itself.
Hong Kong Exchanges and Clearing Limited is about to end a fourth that was exhausting. Stock investing and initial public offerings restored the bourse’s reputation as a global economic hub, and the April-June time was its best on history. The globe’s fourth-largest stock market saw net profits surge 9 % to HK$ 3.16 billion ( US$ 405 million ), or HK$ 2.49 per share.
The decision by Alibaba may cause an extra backseat. Typically speaking, one firm seldom, if ever, makes or breaks an exchange. However, Alibaba’s size and significance for the island’s tech-economy tale could result in billions of dollars in new investments that will likely be filtered into the country’s wider Hong Kong market.
Alibaba can touch titanically large flows of coast money thanks to the transition to main listing in Hong Kong, which wraps up a two-year process. Alibaba’s stock today qualify to add Stock Connect, a system that connects Hong Kong’s change to areas in Shanghai and Shenzhen.
That will make buying Alibaba shares easier than ever for buyers in the island, opening the door to capital inflows of up to US$ 20 billion into the business over the next six weeks, according to estimates. And maybe boosting the general market’s mood.
According to Marvin Chen, an analyst with Bloomberg Intelligence,” We believe the addition of Alibaba to the Stock Connect may have a positive impact on the stock and may help regulate mood given that it is a family name among coast buyers.” He expects island assets of the stock to climb by double-digit ratios, broadening benefits in tech-sector shares.
Alibaba, of course, is even keeping its key listing in New York. This could be its own advantage. Hong Kong shares frequently react muted to gains made on the island. Alibaba’s hold in the US market could offer Hong Kong more inside if New York’s bulls work continues.
Though based in Hangzhou, China, the firm Jack Ma co-founded first listed on the New York Stock Exchange in 2014, raising nearly US$ 22 billion.
At the time, it was the largest US Investor always. Additionally, it established Xi Jinping’s Communist Party as a significant leader, making China a worthy target for international attention.
In 2019, Alibaba opened a secondary list in Hong Kong, raising an extra US$ 13 billion. Afterwards, in 2022, Alibaba’s table applied to transfer its Hong Kong stock to key status. Last month, shareholders eventually approved the pivot.
The prospect is as great as the chance are at play. In 2023, China’s biggest e-commerce person had one of the most turbulent times in its 25-year story. Even by the norms of 2020, the year the government of President Xi repressed internet usage.
In March 2023, Alibaba split into six units to adjust and concentrate its main businesses: home e-tailing, global e-commerce, cloud computing, native services, logistics, and media and entertainment.
At the time, the cash-cow home e-commerce class, which includes the Taobao market, aimed to be a wholly-owned system. The five people are run by various CEOs who each have the authority to pursue their own public ads.
The market is the best litmus test, according to former Alaba CEO Daniel Zhang, who remarked 17 times ago:” Every business team and company may pursue independent charity and Investments when they are available.
The enterprise was bigger than Alibaba, though. As Xi’s regulators attempt to mitigate risks and halt monopolistic tendencies among tech giants, China Inc. did a case study of sorts.
Given that Xi and Premier Li Qiang want private companies to be the ones who create the most jobs and boost a troubled economy, it’s quite a balancing act.
Ma’s Alibaba was an obvious place to start. It has long been a global representation of China’s tech goals and a symptom of Beijing’s tolerance for tech billionaires spreading their wings.
Nowhere did that tension come across more clearly than in October 2020. After Ma criticized China’s financial regulators for stifling innovation, authorities canceled a$ 35 billion IPO planned by Ma’s fintech unit Ant Group.
Alibaba’s efforts to remake itself remain a work in progress. Last year, the e-commerce titan disappointed investors as profits dropped and revenue growth was a weaker-than-expected 4 % in the second quarter.
The company’s performance highlights two significant issues that Zhang, who took over as CEO in September, and Chairman Joseph Tsai and CEO Eddie Wu have yet to resolve. One is intensifying competition from rivals such as JD.com, Temu-owner PDD Holdings and others.
” Competition will remain a key issue for Alibaba”, says Shawn Yang, an analyst at Arete Research. As Alibaba began testing a new advertising tool this past quarter, some investors may have high hopes for the increase in the company’s take rate. However, the results ‘ actual figures indicate that it may take longer for that effort to pay off.
The other is a lethargic Chinese economy that Team Xi has yet to revive, which is hampered by weak consumption and made worse by a cratering property sector. Chinese consumers deposited less money in the bank in July but also did n’t spend more. Some people assume that 2024 will be a bad year for economic growth.
” The year-on-year decrease in excess savings growth has not yet translated into increased consumption”, says Tommy Xie, head of Greater China research at OCBC Bank. This may be related to households shifting their deposits to wealth management products and paying off their loans early.
That deleveraging matters to Alibaba’s bottom line. Team Ma, after all, created an amalgam of Amazon, PayPal, eBay, travel agencies, brokerage services and real estate, thrusting his interests into virtually every sector imaginable to reach China’s 1 billion-plus internet users.
This arguably makes Alibaba’s quarterly performance a better gauge of China’s economic health than gross domestic product ( GDP ) reports. Nothing else would increase Alibaba’s stock more quickly than Xi’s reform team’s increase in consumer spending.  ,
There is still a level of capital outflow pressure, according to Lynn Song, chief economist for Greater China at ING Bank, “weak growth is likely to lead to more PBOC easing.”
By the most general sense, China’s budget expenditures are shrinking at a time when local government land sales are declining at a rate unprecedented. Many economists believe that this will put more pressure on Xi and Li to take bolder steps to stabilize China’s US$ 17 trillion economy.
The Third Plenum extravaganza’s policies, as anticipated, will prioritize boosting consumer spending. So far, such moves have been in short supply.
Zhang Ming, an economist, recommends that Beijing should increase investment and promote consumer spending by double or triple the value of this year’s special sovereign bonds, reaching 3 trillion yuan ( US$ 420 billion ).
According to Zhang, deputy director of the Institute of Finance &, Banking at the Chinese Academy of Social Sciences, a government think tank, “if we adhere to the central budget deficit level of 3 % no matter what it takes, fiscal spending will inevitably contract and become pro-cyclical.”
Upright Asset Management’s chairman, Chenjie Liu, points out that “raising the fiscal deficit ratio is an appropriate and effective policy tool.”
Economist Lisheng Wang of Goldman Sachs adds that” we see significant downward pressure for fiscal funding this year from falling tax and land sales revenue, besides the multi-year” deleveraging by state-owned companies known as local government financing vehicles, or LGFVs.” The hope is to reduce China’s exposure to off-balance-sheet debt risks.
If China’s 5 % growth goal is met, it will significantly ease Alibaba’s path to 2025 and entice more investors to buy Alibaba shares.
As of now, analyst Laura Wang at Morgan Stanley says” we expect some inflows but not major”, at about US$ 12 billion in the first six months after inclusion, or about 7 % of Alibaba’s total outstanding shares.
The positive news is that Alibaba’s significant investment in cloud computing has succeeded. The business experienced a modest 5.9 % growth as a result of CEO Wu’s strategic change in cloud computing and artificial intelligence. That offset Alibaba’s main platforms Taobao and Tmall, which saw a 1 % decline in revenue.
Any progress Beijing makes in accelerating economic growth would be greatly benefited by Alibaba’s unique position on the frontlines of China’s GDP zigs and zags, but it would have a big impact on its appeal among international investors. Perhaps even for Hong Kong’s appeal, too.
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