Alibaba’s secondary listing in Hong Kong is scheduled to take place next Tuesday, 26th November. The market expects Alibaba would be able to raise over 10 billion US dollars via this secondary listing, some news reports suggest Alibaba could raise over 15 billion US dollars. At this moment, no one can be certain how well Alibaba can do through this listing in Hong Kong, the market has lots of faith in this probably the most major financial event in Hong Kong stock market this year.
The share price in the long term will depend on the firm’s performance. However, since the company is listed in two separate market, the investors who are interested in buying Alibaba’s shares may be interested in where they should buy the shares. Technically speaking, it should not have any major difference, but the reality suggests location can affect share price. Sometimes the volatility in the forex market is another factor to create a difference in one company’s share prices in two places; however, since HKD has a strong tie with the USD, such factor could be omitted.
Listing in Hong Kong increases the number of potential investors. Many non-institutional Chinese investors do not have access to foreign stock markets; however, due to Shanghai-Hong Kong Stock Connect, these investors have access to the Hong Kong stock market. The BAT (Baidu, Alibaba and Tencent) have been the three major tech firms in the Chinese market for around a decade; as one of them, Alibaba has incredible influence in the Chinese market and is likely able to attract a substantial amount of interest. When more investors are interested in and get access to one stock, the stock price can be volatile in the beginning, because more speculators enter the market. After a while, the price will become more stable. When more people participate in price adjustment, it is more likely for the price to be closer to its real value, which is a good thing. After more Chinese investors entering the market, since their livings are more affected by Alibaba, they are more likely to be bullish, thus the share price might be pushed higher after these investors entering the market.
However, such change may not occur in the US market, where investors are systematically different from the new entrants who have no access to the US market in the Hong Kong market. If we have bullish investors in one place and bearish investors in another place and they never interact with each other, we will definitely see the prices in two places are significantly different. In reality, the investors in the US and Hong Kong will definitely have interaction with each other, but it does not mean one side will convince the other side or vice versa, then the two markets may have a consistent price gap until some major event brings the two sides together.
Overall, I personally expect if more institutional investors are active in trading the Alibaba shares in Hong Kong, then there won’t be any different performance from it in the US; but if more Chinese retail investors who do not have access to the US market participate, it is possible for us to see a price gap between the prices in the two places, and it is likely for the share price in Hong Kong to be higher than the share price in the US, since a greater proportion of investors in Hong Kong is interested in Alibaba than the proportion in the US.
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