Alibaba Shares Surge 3% After Inclusion in Mainland Stock Exchanges Through Stock Connect Scheme

Alibaba Group shares jumped by 3% on Tuesday as investors welcomed its inclusion on China’s mainland stock exchanges. This follows the e-commerce giant’s decision to upgrade its Hong Kong listing to primary status last month, a move that has now opened the doors for the company to be added to the Stock Connect Scheme. The scheme allows mainland Chinese investors to buy shares in Hong Kong-listed companies, significantly expanding Alibaba’s investor base.

Alibaba announced its inclusion in the Stock Connect Scheme late Monday evening. The development is seen as a major step for the company, which has faced years of regulatory pressure, causing its Hong Kong-listed shares to drop more than 70% since 2020.

$BABA || Alibaba's decision to change its Hong Kong listing could allow it to join the Southbound Bond Connect next month, according to Goldman Sachs. The firm also notes that Alibaba has already bought back $10.6 billion in shares during the first half of 2024. https://t.co/3646AF9gP0

— BigBreakingWire (@BigBreakingWire) August 23, 2024

Key Benefits of Stock Connect Inclusion

Financial experts have long anticipated that Alibaba’s inclusion in the Stock Connect Scheme would positively impact its share price. Analysts at Morgan Stanley had previously predicted that this would act as an “imminent share price catalyst.” The firm estimates that net inflows into Alibaba could range between $17 billion and $37 billion from mainland Chinese investors over the next year. Other reports suggest that $12 billion in onshore funds could flow into Alibaba’s stock.

Despite these bullish predictions, some analysts have noted that the initial reaction from investors has been somewhat muted, with Morgan Stanley pointing out that there was “hardly any reaction” in shares, even with the large estimated inflows. They did, however, highlight that mainland investors currently account for about one-third of the daily turnover in Hong Kong’s $5 trillion market, indicating Alibaba could see significant long-term benefits.

Regulatory Resolutions Boost Investor Confidence

Alibaba’s shares have been under pressure since 2020, following a multi-year regulatory crackdown on major Chinese technology companies. The company was notably fined for monopolistic practices in 2021. However, in late August 2024, Chinese regulators announced that Alibaba had completed its three-year rectification period, raising hopes that the company may have put its regulatory woes behind it. This news has been seen as a positive signal to investors, contributing to the recent stock surge.

Joining the Stock Connect Scheme has already proven beneficial for other companies. For instance, smartphone maker Xiaomi saw a boost in trading volumes following its inclusion, while around 10% of Tencent’s shares are now held by mainland investors through the scheme. Alibaba’s inclusion is expected to further enhance the company’s liquidity and investor base.

Outlook for Alibaba

As one of the largest e-commerce firms globally and the most valuable in China by market capitalization, Alibaba’s inclusion in the Stock Connect Scheme offers a new chapter in its growth story. Mainland Chinese investors will now have direct access to Alibaba’s shares, which could lead to higher trading volumes and potential share price gains. The company is poised to benefit from the growing influence of Chinese retail investors in the Hong Kong market, offering a boost to its market performance.

With the regulatory pressures seemingly easing and increased accessibility for mainland investors, Alibaba may be on the path to recovery after a turbulent few years. Investors will be watching closely to see how these factors impact Alibaba’s stock performance in the coming months.

Update

Alibaba Chairman Joseph Tsai has recently acquired more than 1.45 million additional shares of the company over the past few weeks, according to the latest disclosure. This move indicates his continued confidence in Alibaba’s future prospects. Tsai, who co-founded the Chinese tech giant, has been a key figure in its growth and expansion. The additional share purchases further solidify his significant stake in the company and highlight his ongoing involvement in Alibaba’s long-term strategy. The exact details of these transactions were disclosed in the company’s latest filing with regulatory authorities.