The Alibaba Primary Hong Kong Listing and Investors

It’s estimated that a primary listing in Hong Kong, which requires greater compliance than a secondary listing but brings with it access to Hong Kong’s Stock Connect link to Mainland China, could bring in upwards of $21 billion in new inflows for Alibaba, according to Robin Zhu, analyst at Sanford. C. Bernstein. Having access to the Hong Kong Stock Connect would pave the way for mainland investors in China to access Alibaba’s stocks, providing a whole new avenue of investment opportunity for the company.

The filing for a primary listing in Hong Kong is all part of the uncertainty over whether China and the U.S. will be able to find a way forward that appeases regulation requirements on both sides. Chinese companies currently listed in the U.S. would face delisting beginning in 2024 under the Holding Foreign Companies Accountable Act, which requires U.S. access and inspection of foreign companies’ audits for three consecutive years.

Alibaba currently has a secondary listing in Hong Kong that was enacted in 2019, but it hinges on its current primary listing on the New York Stock Exchange, launched in 2014 with the biggest initial public offering of the time. Currently, shares can be traded on either exchange and are fungible, meaning that stocks purchased on either exchange can be crossed over, as they represent the same holding in the company regardless of which exchange they were invested through.

“We believe this could also allow long-only portfolio managers to take a position in Alibaba and re-enter China’s internet sector overall. Furthermore, the primary listing in Hong Kong could become the Alibaba representative share class in global indexes should trading volume rise appropriately,” wrote Brendan Ahern, CIO of KraneShares, on the China Last Night blog.

The NYSE listing continues to be the primary entry point for investors for now, with an average daily trading volume of $3.2 billion in the U.S. over the first six months of 2022, compared to the Hong Kong exchange, which saw $700 million in average daily trading volume over the same period.

The KraneShares CSI China Internet ETF (KWEB B) offers exposure to some of the biggest companies within China’s internet sector. This includes companies that develop and market internet software and services, provide retail or commercial services via the internet, develop and market mobile software, and manufacture entertainment and educational software for home use. Alibaba is carried at a 9.51% weight within the fund.

The KraneShares Hang Seng TECH Index ETF (KTEC ) offers exposure to internet stocks, e-commerce companies, fintech firms, and other tech-related companies. KTEC tracks the 30 technology companies in Hong Kong’s tech sector with the highest free-float market capitalization and invests primarily in China H shares — meaning shares of stocks that are incorporated in mainland China and trade on the Hong Kong Stock Exchange. Alibaba is carried at a 8.15% weight within the fund.

The KraneShares MSCI All China Index ETF (KALL A-) tracks the MSCI China All Shares Index, a benchmark of companies that are based in and headquartered in China, as well as listed in Mainland China, Hong Kong, and the U.S. The fund is broadly diversified across the Chinese economy, with exposure to sectors such as consumer discretionary, financials, communication services, consumer staples, and more. Alibaba is carried at a 5.91% weight within the fund.

Exposure to Alibaba has transitioned from ADRs to Hong Kong shares within the KraneShares funds as delisting concerns have prompted the firm to move allocations over to best protect its investors. Other KraneShares funds with Alibaba exposure include the KraneShares Emerging Markets Consumer Technology Index ETF (KEMQ B-), the KraneShares China Innovation ETF (KGRO ), and the KraneShares MSCI China ESG Leaders Index ETF (KESG ).

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