Several of Alibaba’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 big Chinese technology companies.
Temasek Group Holdings, Baillie Gifford and Matthews Asia are among the major shareholders that swapped stakes in the Chinese e-commerce company to take advantage of new rules easing the switch after Alibaba’s listing in Hong Kong last year.
Geopolitics is also contributing to the shift.
“Lots of long-term fund managers, especially the ones ... based in Asia, are switching or considering switching from ADRs [American Depository Receipts] into Hong Kong-listed shares,” said Nelson Yan, head of offshore capital markets investment at Creditease Wealth Management in Hong Kong.
“Demand for these ADRs in the US is now clouded by the politics.”
The Alibaba share conversions are a sign that the US government's fierce rhetoric against Chinese technology companies is prompting investors to take steps to avoid the potential fallout.
At the same time, as Chinese companies seek more dual listings in Hong Kong, the moves threaten to drain liquidity of the New York shares.
Baillie Gifford, whose partner and portfolio manager James Anderson told Bloomberg TV in March that Alibaba could become a $2 trillion (Dh7.34tn) company, swapped 10.4 million US-listed shares worth about $2.67 billion in the second quarter.
That is 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, swapped the shares for Hong Kong-listed stock.
A spokesperson for the Edinburgh-based company 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 $3bn – from the US to Hong Kong, but declined to comment further.
The issue has been on top of the mind of many institutional investors since May when the US Senate overwhelmingly approved S.945 – a bill that could lead to Chinese companies being banned from listing on US exchanges.
Conditions include being able to certify that they are not under the control of foreign governments and allowing the Public Company Accounting Oversight Board to audit the business.
Matthews Asia, which manages about $23.4bn, divested almost three quarters of its US Alibaba shares in the second quarter, worth about $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 does not 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,” Mr Shroff told clients in a July webcast.
Keywise Capital Management, which oversees $1.5bn for global investors including sovereign wealth funds and endowments, plans to invest in the Hong Kong shares of dual-listed Chinese companies, said founder and chief investment officer Zheng Fang.
The increased US scrutiny of Chinese ADRs has led to investor concerns about the potential risks of holding these securities, he said.
The Hong Kong shares may also get a boost from MSCI’s plan to reduce Chinese ADR weightings in its indexes, while raising Hong Kong shares, he said.
Once listed in Hong Kong, those companies may be included in the share connect scheme with China, allowing them to attract support from mainland Chinese investors, he said.
Myriad Asset Management, the hedge fund led by Carl Huttenlocher, also swapped most of its Alibaba ADRs for Hong Kong shares.
With more of Alibaba’s peers listed in Hong Kong, expectations are that it will become easier to compare valuations and do hedged trades.
The share moves are already boosting Alibaba’s trading in Hong Kong.
On a 50-day moving average basis, Hong Kong’s daily turnover now accounts for about 17 per cent of the company’s total trading, up from a low of 13 per cent 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 per cent of Alibaba’s total float, compared with 2 per cent before.
Investors in the Hong Kong shares have been rewarded, with the stock gaining 45 per cent since the November listing, compared with a 35 per cent 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 September 7.
Alibaba rose by 3.6 per cent to $33.81 in Hong Kong on Monday.
“The majority of its shares are still in the US, but the relocation is already happening and that is driven by long-term holders,” said Kenny Wen, Hong Kong-based strategist at Everbright Sun Hung Kai.
“In the very long run, we can’t exclude the possibility for Hong Kong to become the primary listing place for Alibaba.”
