Alibaba's Hong Kong-listed shares could be ready for mainland buyers via Stock Connect by September 9, Morgan Stanley says

Alibaba could join the Stock Connect cross-border trading mechanism as early as September 9, after its dual-primary shares listing in Hong Kong is completed, according to Morgan Stanley. The overall impact on the market is expected to be limited, however, after an initial influx of money from mainland investors, they said.

Up to US$12 billion of investment from mainlanders is likely in the first six months after the e-commerce giant joins the Stock Connect scheme, which would bring their ownership of Alibaba to around 7 per cent, strategists including Laura Wang said in a note on Sunday.

The percentage of mainland ownership is likely to stabilise around the low teens in the long run, they added.

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"We expect some inflows but not major," they wrote.

Alibaba owns the South China Morning Post.

The Hangzhou-based company, whose American depositary receipts (ADRs) are traded in New York, disclosed a progress report on its primary listing plan in Hong Kong last month. It said it expects to complete the conversion from secondary to primary listing by the end of August, which is a prerequisite to be included in the Stock Connect, the cross-border exchange link programme.

If approved, the completion of the listing process at the end of August implies that the first day of so-called southbound trading could be as early as September 9, the US bank said. The southbound channel of the Stock Connect programme refers to the buying and selling of shares in Hong Kong by mainland investors.

"The main reason for us to proceed with the dual primary listing is because we want to tap into the southbound capital flows through the Stock Connect programme," Joe Tsai, co-founder and chairman of Alibaba, said in an interview with the Post.

Southbound trading has become a major pillar of the city's market since the launch of the Stock Connect scheme in 2014, as mainland investors deploy money to Hong Kong in search of diversifying their investments.

Onshore investors have ploughed US$36.3 billion into the city's stock market so far this year, taking the net buying of local shares to over US$400 billion (HK$3 trillion) as foreign investors retreat, according to data compiled by Goldman Sachs.

The inclusion in Stock Connect could potentially provide some liquidity and valuation support to Alibaba, whose Hong Kong-listed shares have been lagging the broader market so far in 2024.

The Hang Seng Index has climbed 8 per cent this year driven by a recovery in risk appetite, while Alibaba only added 1.4 per cent as investors remained wary of the pressures brought by rivals like Pinduoduo.

Still, more recent market dynamics suggest there are reasons to be cautious about southbound inclusion, Morgan Stanley said. Mainland investors' appetite for large-cap internet stocks might have already waned, as suggested by the weak fund flows into peers like Tencent this year, the analysts said.

There has been a major shift in the direction of southbound flows from internet companies to financials and telecoms, as mainland investors prioritise stable cash returns from industries with high dividend yield, they said.

"Southbound's incremental support for liquidity and turnover could be limited," Wang wrote in the note.

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