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Alibaba’s IPO success is no panacea for Hong Kong

By Jonathan Breen
27 Nov 2019

Hong Kong hosted Alibaba Group Holding’s jumbo IPO in tough political times this month, yet the deal received overwhelming support in primary and the shares soaring in the aftermarket. While this success gave the city’s stock market a much-needed boost, other issuers would be mistaken in thinking that such liquidity is also available to them.

E-commerce giant Alibaba raised HK$88bn ($11.2bn) from its US follow-on style IPO in Hong Kong last week on the back of $40bn of demand. Priced at HK$176.00 per share, its stock traded up in the grey market to debut at HK$187.00 apiece on Tuesday and close at HK$187.50.

The IPO lifted the mood in Hong Kong, which is facing rising violence between pro-democracy protestors and the police, as the city-wide demonstrations that began in June continue.

But companies lining up IPOs shouldn’t mistake Alibaba’s success as a sign the winds have changed or that liquidity in Hong Kong is flowing at full speed again.

Alibaba, a Chinese firm valued at more than half a trillion dollars, set the stage for its listing with strong third-quarter results and a record-breaking $38bn singles’ day promotional shopping event. In addition, investors have been waiting for Alibaba to come home ever since it ditched the HKEX in 2014, raising $25bn instead from a flotation on the New York Stock Exchange.

This means that Alibaba’s deal would have been well-received regardless of when it listed, and whether it had done so in HKEX or the Mainland’s bourses. Its first day surge of 6.5% on Tuesday reflected demand for a behemoth that is still growing, and excitement among regional and local investors who couldn’t buy its American Depository Shares.

But that is not necessarily the sentiment for other stocks or companies seeking a listing in Hong Kong.

Sure, there could likely be a positive short-term knock-on effect. But as many bankers and analysts have pointed out, Hong Kong’s stock market is primarily at the mercy of global macro-economic trends. Every development in the US-China trade negotiations causes a swing in the benchmark Hang Seng Index, and hence, investor appetite. And if things turn politically in Hong Kong, that would also impact buy-side interest in the city’s stocks.

Where Alibaba’s secondary listing can really benefit the HKEX is the affect it can have on other overseas-listed Chinese companies that are now, or have already been, considering a Hong Kong IPO. A lot of liquidity is required for a secondary listing to work, so it will likely be large names eyeing the opportunity. Alibaba has laid the groundwork by showing that it can be done, and done well.

Alibaba’s IPO should certainly not be seen as a sign that Hong Kong’s stock market is back to normal. While it may have loosened a few purse strings as the year’s end nears, the deal’s potential to encourage more of the same is where its true value lies.

By Jonathan Breen
27 Nov 2019