(Bloomberg) — Chinese investors finally being able to buy shares in Alibaba Group Holding Ltd. could provide a much-needed boost to the e-commerce company’s stock, with up to $20 billion in inflows next year.
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The company first hatched plans to upgrade to a primary listing in Hong Kong two years ago amid heightened tensions with the U.S. It could finally come to fruition by the end of the month, paving the way for it to join a program that would link the Shanghai and Shenzhen stock exchanges with the Hong Kong bourse.
This new source of funds through the so-called “southbound link” could support the shares, which have underperformed those of main rival Tencent Holdings Ltd. on concerns about the impact of competition and sluggish consumption in China.
“We think Alibaba’s addition to Stock Connect would have a positive impact on the stock and help stabilize sentiment as it is a household name among mainland investors,” said Marvin Chen, an analyst at Bloomberg Intelligence. Mainland ownership of the stock could reach double digits, similar to other tech giants, Chen added.
Shares of Alibaba have risen just 2% so far this year in Hong Kong, while key rivals Tencent and Meituan have each risen 25%. Weak retail sales in China have hurt Alibaba’s core business, and price wars in cloud services are holding back growth in a potential new driver.
On Thursday, Alibaba posted a meager 4% rise in first-quarter revenue after its Chinese e-commerce business shrank for the first time in at least a year. Profits fell 27%, dashing hopes of a quick turnaround.
In addition to China’s struggling economy, Alibaba’s shares have been hit in recent years by Beijing’s tightening regulations and geopolitical tensions with Washington. The company originally conceived of the dual primary listing in 2022 amid fears of a possible delisting of its American Depositary Receipts, a threat that subsequently subsided.
The next step in the plan is a vote by shareholders at the annual general meeting on Aug. 22. If the upgrade to a primary listing in Hong Kong is completed by the end of this month, the shares could join Stock Connect on Sept. 9 at the earliest, Morgan Stanley said.
“We expect some inflows, but not huge ones,” about $12 billion in the first six months after listing, or about 7% of Alibaba’s total outstanding shares, analyst Laura Wang wrote in a June note. Bloomberg Intelligence’s Chen expects up to $19.5 billion in inflows, though “this will take time to build up and the initial impact won’t be that big.”
Other Stock Connect participants were mixed in their share price performance. XPeng Inc. and Kuaishou Technology fell in the month after the move. Xipu Han, a quant strategist at JPMorgan Chase & Co., expects Alibaba to look more like Meituan, whose shares outperformed the benchmark in the month after the move, with trading volume growing 20% in six months.
Of course, how the stock performs may depend more on the fundamentals of the company and the environment in which it operates. But access for Chinese investors could add to the momentum, especially amid recent foreign fund outflows.
“Over the past two years, even Chinese investors have been disappointed by major Chinese internet stocks, so it’s hard to say whether Alibaba could follow the trading patterns of its predecessors,” said Kenny Wen, head of investment strategy at KGI Asia Ltd. If the stock rises on positive news, “then the buying will be reinforced because there will be additional resources.”
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