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Is Alibaba’s mega listing in Hong Kong the prelude to an exodus of Chinese technology stocks from US capital markets?
After Alibaba Group Holding’s US$12.9 billion offering in Hong Kong last month, investors are on the lookout for who will be the next Chinese technology giant to seek a similar windfall in the city.
Some of China’s biggest new economy names, including Baidu, JD.com and Weibo, are among a small universe of companies who previously raised capital in the United States and could easily pursue their own secondary listing in Hong Kong thanks to a rule change by the city’s bourse two years ago.
The listing reform made it easier for companies with dual classes of shares – a structure favoured by technology companies such as Facebook and Google – and pre-revenue biotechnology firms to seek secondary offerings in the city. It came after the Hong Kong stock exchange lost out to New York in a race for Alibaba’s US$25 billion initial public offering in 2014.
The success of Hangzhou-based Alibaba’s listing in Hong Kong – the second-biggest globally this year after Saudi Aramco’s IPO and the third largest technology offering on record – could spur more Chinese firms to seek their own listings closer to home, according to bankers, economists and market watchers.
Sean Taylor, the chief investment officer for Asia-Pacific at asset manager DWS, said a secondary listing in Hong Kong would open up a new ecosystem of investors to Chinese firms that opted to list on American bourses and act as a potential hedge against the increasingly tense relationship between the US and China.
“It dampens the risk of waking up in the morning and having some China-US news go slightly bad or a tweet from [US President Donald Trump] and seeing all the [American depositary receipts] down,” Taylor said. “You’ve got a lot of good companies that are listed in ADRs in the US, but they’re completely domestically run Chinese businesses. They have nothing to do with global trade, but they get affected because of this in the US.”
Washington and Beijing have been locked in a trade war for more than a year, with President Trump placing tariffs on hundreds of billions of dollars of Chinese goods as he tries to force China to change decades of industrial and trade policy.
Politicians on both sides of the aisle in Washington also have suggested limiting the ability of American pension funds to invest in Chinese companies and restricting the ability of Chinese companies to access the US capital markets until Beijing agrees to reforms.
“As the rivalry between China and the US becomes the new norm, it’s going to take some time for both countries to find a new equilibrium in their relations,” said Hong Hao, chief strategist at Bocom International, the securities and asset management arm of Bank of Communications. “Alibaba has very healthy financials, and it didn’t really need the secondary listing for refinancing. It’s preparing a backup solution as a responsible company.”
President Trump announced a “substantial phase one deal” between the world’s two biggest economies in October, but an agreement has yet to be signed.
Concerns are growing that a potential deal could be derailed after President Trump signed into law legislation that could potentially subject Hong Kong to diplomatic and economic sanctions if the city’s autonomy from mainland China was undermined and the House of Representatives passed a bill tightening scrutiny over human rights abuses against Uygurs and other largely Muslim ethnic minority groups in Xinjiang. Another round of tariffs is currently set to go into effect on December 15 if no deal is reached.
On Tuesday, ahead of a meeting with Nato leaders, President Trump said there was “no deadline” for a trade deal and one could be delayed until after the US presidential election next year. His comments sent stock benchmarks down broadly in Asia on Wednesday as investors have been anticipating a deal.
“The window of opportunity for a deal this year is rapidly closing if only because of the time required to arrange a meeting between the two leaders to sign an agreement,” Jon Harrison, managing director for macro strategy at research firm TS Lombard, said. “A phase one deal remains our central scenario, but timing is increasingly uncertain, while continued delay in reaching [an] agreement could start to become a drag on EM [emerging market] assets that are for the most part already pricing in a positive deal outcome.”
Bank of America economist Helen Qiao said there is rising concern among investors that the trade war is going to expand into “a capital war, an investment war or even a war on currency”, but there remains a good chance for a “skinny” deal between the world’s two largest economies.
“With some policy stabilisation and the US economic growth kind of weakening next year, we’re seeing the chance for better cooperation, not necessarily as much confrontation,” Qiao said. “That said, how much can you achieve in 2020, an election year? That is still a wild card out there.”
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