How will Alibaba's new listing in Hong Kong affect its US stock price? - Seedly
 

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Asked by Billy Ko

Asked on 13 Jun 2019

How will Alibaba's new listing in Hong Kong affect its US stock price?

Just wanted to understand if and/or how the upcoming listing would result in the movement of its US share price

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Hello! This was a rather interesting question so I went to do some research:

TL;DR

Alibaba has filed confidentially for a Hong Kong listing that could raise as much as $20 billion, and could take place as early as 2019Q3.

With its Hong Kong mega-listing, its US share price will most likely rally higher due to overall positive outlook on the growth profile of Alibaba, given its proven track record of positive year-on-year growth. However, if the US-China trade war continues to weigh down on the global economy, this will have a sizeable impact on Alibaba’s US & HK share price.

This mega-listing is certainly one to watch.

Alibaba Group Business Overview

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese holding company that specializes in 4 segments: core commerce, cloud computing, digital media and entertainment, and innovation initiatives. Founded in 1999 by Jack Ma, they are based in Hangzhou, China, and have a global presence.

Some of their companies include:

Its competitors include Amazon, Meituan-Dianping and Tencent Holdings Ltd.

About the IPO

The Group has filed confidentially for a Hong Kong listing that could raise as much as $20 billion, and could take place as early as Q32019.

This would provide them with funds to invest in technology (especially so with the US-Huawei Saga) and compete better against their competitors in the various business segments. This also comes on the back of the US-China trade war and slowing economic growth in China where Alibaba is struggling to sustain growth.

Previously, companies with a governance system where top executives could nominate a majority of board members could not list on the Hong Kong Stock Exchange. This included Alibaba and thus they floated on the New York Stock Exchange. However, with the new rules for secondary listings introduced last year, they can apply for an exemption to be listed.

How will its Hong Kong listing affect its US share price?

Firstly, with the Group’s proposed one-to-eight stock split of their ordinary shares, there will be an immediate decrease in its US share price after the stock split. For example, its share price will drop from $168.25 to $21.03 (as of 20/06/2019). This stock split will increase flexibility in future capital raising activities and increase the number of shares available for issuance, at a lower per share price. Since small investors find the stock more affordable and purchase it, this boosts demand and drives up share prices.

Secondly, the announced major business reshuffle to strengthen leadership of the innovation group and bolster its investment focus may boost investor confidence. Chief Financial Officer Maggie Wu will serve concurrently as Head of Strategic Investment Development There are also other new initiatives and reorganisation of business segments.

With its Hong Kong mega-listing, its US share price will most likely rally higher due to overall positive outlook on the growth profile of Alibaba, given its proven track record of positive year-on-year growth. However, if the US-China trade war continues to weigh down on the global economy, this will have a sizeable impact on Alibaba’s US & HK share price.

Looking back on 2019 alone, Alibaba gained more than 21%, rallying ahead of the broad market.

Should you invest in the IPO?

With the above points in consideration, Alibaba indeed has strong economic moats and the US-China trade war is only a bump in the road. Even with China’s slowdown, they continue to grow market share and broaden revenue mix and investment profile. However, in the wake of the Hong Kong extradition bill protests, there might be potential repercussions on Alibaba’s HK listing.

All in all, this mega-listing is certainly one to watch.

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Jonathan Ng
Jonathan Ng

21 Jun 2019

Thanks Sarah & Billy! :)
Cherie Julianne Tan
Cherie Julianne Tan

23 Jun 2019

I totally agree with Billy!
Andy Yew
Andy Yew, Portfolio Manager at Phillip Securities
Level 5. Genius
Updated on 18 Jun 2019

Logically it should have positive impact for the US listed stock price

Jack Ma is one of the richest Chinese guy (very smart stock investor), in November 2007 Alibaba IPO In Hong Kong, the Share price tripled from hk$13.50 to as high as Hk$39.95 and close at $39.50

In September 2014 US Alibaba IPO, the IPO priced at $68 and opening price is $92.70

So I think they are really smart.

Are you excited about 2019 Alibaba IPO?

For the US stock, it is better follow the trend with an indicator to determine when the trend start moving up, example price cross above 50 days moving average.

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Billy Ko
Billy Ko

18 Jun 2019

And Alibaba announced yesterday they are gonna do a 1-8 share split. Interesting what's the rationale behind all these initiatives. Thanks for your reply! :)
Dexter Tiah
Dexter Tiah, Founder at Whatcard.sg
Level 4. Prodigy
Answered on 21 Jun 2019

If it is cross listed, the hong kong ipo valuation should be close to the us one. Otherwise, it will converge post ipo

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