Published: 14:03, August 24, 2020 | Updated: 19:16, June 5, 2023
Alibaba investors swap US-listed shares for Hong Kong
By Bloomberg

Pedestrians wearing protective masks walk past the Alibaba Group Holding Ltd logo displayed in front of the company's building in Beijing, Aug 19, 2020. (GILLES SABRIE / BLOOMBERG)

Several of Alibaba Group Holding Ltd’s biggest investors have converted billions of dollars in US shares for Hong Kong stock in part to avoid potential US sanctions and delistings of major Chinese mainland technology companies.

Temasek Group Holdings Pte, Baillie Gifford & Co, and Matthews Asia are among the major shareholders that have swapped stakes in the e-commerce giant to take advantage of new rules easing the switch following Alibaba’s listing in Hong Kong last year. Geopolitics is contributing to the shift, according to people familiar with the moves.

“Lots of long-term fund managers, especially the ones whose fund managers are based in Asia, are switching or considering switching from ADRs into Hong Kong-listed shares,” said Nelson Yan, head of offshore capital markets investment at Creditease Wealth Management (Hong Kong) Ltd, referring to American Depositary Receipts. “Demand for these ADRs in the US is now clouded by the politics.”

The Alibaba stock shifts are a sign that the Trump administration’s rhetoric against Chinese tech firms is prompting investors to take steps to avoid the potential fallout

The Alibaba stock shifts are a sign that the Trump administration’s rhetoric against Chinese tech firms is prompting investors to take steps to avoid the potential fallout. At the same time, as mainland companies seek more dual listings in Hong Kong, the moves threaten to drain liquidity of the New York shares.

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Baillie move

Baillie Gifford, whose partner and portfolio manager James Anderson told Bloomberg Television in March that Alibaba could become a US$2 trillion company, swapped 10.4 million US-listed shares worth about US$2.67 billion in the second quarter. That’s about a fifth of its stake, and is the biggest change since it first bought shares in 2014.

The money manager, among Alibaba’s largest shareholders, converted the stock to the Hong Kong-listed shares, according to a person familiar with the move. A spokesperson for the Edinburgh-based firm declined to comment.

A spokesman for Singapore’s state-owned investor Temasek confirmed that it swapped half of its stake representing 12.1 million shares - worth about US$3 billion - from the US to Hong Kong, declining to comment further.

Venue doesn’t really matter a whole lot – it’s about getting access to liquidity and it’s about getting access to the right pricing mechanism so we continue to have a position in Alibaba both through the Hong Kong listing as well as the listing in the US.

Sharat Shroff, Lead manager at Matthews Asia

Matthews Asia, which manages about US$23.4 billion, divested almost three quarters of its US Alibaba shares in the second quarter, worth about US$700 million. Much of that is now held in H-shares in Hong Kong and in its Pacific Tiger Fund, whose lead manager is Sharat Shroff.

“Venue doesn’t really matter a whole lot – it’s about getting access to liquidity and it’s about getting access to the right pricing mechanism so we continue to have a position in Alibaba both through the Hong Kong listing as well as the listing in the US,” Shroff told clients in a July webcast.

Keywise Capital Management, which oversees US$1.5 billion for global investors including sovereign wealth funds and endowments, plans to invest in the Hong Kong shares of dual-listed mainland companies, said founder and Chief Investment Officer Zheng Fang. 

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Stock connect

The Hong Kong shares may also get a boost from MSCI’s plan to reduce the Chinese ADR weightings in its indexes, while raising Hong Kong stocks, he said. Once listed in Hong Kong, those companies may be included in the stock connect scheme with the mainalnd, allowing them to attract support from mainland investors, he added.

Myriad Asset Management, the hedge fund firm led by Carl Huttenlocher, also swapped most of its Alibaba ADRs for Hong Kong shares, said a person with knowledge of the matter. With more of Alibaba’s peers listed in Hong Kong, it’ll become easier to compare valuations and do hedged trades, the person said.

The stock moves are already boosting Aliababa’s trading in Hong Kong. On a 50-day moving average basis, Hong Kong’s daily turnover now accounts for about 17 percent of the company’s total trading, up from a low of 13 percent in early June.

The float has also risen. Alibaba’s shares trading in Hong Kong have jumped 4.3 times to 2.5 billion, according to data disclosed with the Hong Kong exchange as of Friday. Hong Kong shares now account for about 12 percent of Alibaba’s total float, compared with 2 percent before.

Investors in the Hong Kong shares have been rewarded, with the stock gaining 45 percent since the November listing, compared with a 35 percent jump in the US stock over the same period in local currency terms. The Hong Kong shares may attract even more institutional investors when Alibaba joins the Hang Seng Index on Sept 7.

READ MORE: Alibaba and Xiaomi get into Hong Kong's benchmark index

Alibaba jumped 3.6 percent to US$33.81 in Hong Kong Monday.

“The majority of its shares are still in the US, but the relocation is already happening and that’s driven by long-term holders,” said Kenny Wen, Hong Kong-based strategist at Everbright Sun Hung Kai Co. “In the very long run, we can’t exclude the possibility for Hong Kong to become the primary listing place for Alibaba.”