Alibaba attracts investors after its inclusion in the stock connect program

Alibaba Group Holding shares could see significant growth after becoming accessible to mainland Chinese investors through the cross-border Stock Connect program. Historical analysis shows that other major Chinese tech companies listed in Hong Kong saw strong gains after joining this scheme, suggesting that Alibaba could follow the same path.

Comparable tech companies such as Tencent Holdings, Meituan and Xiaomi saw gains of between 12% and 23% in the six months after their inclusion on Stock Connect. Over 12 months, shares of Meituan and Xiaomi even doubled in value, according to data compiled by the Stock Connect. South China Morning Post.

Alibaba’s access to the mainland Chinese investor market could renew investor confidence as the company has lost more than 70% of its market capitalization since its peak in 2020. In addition, inclusion in the program could prevent Alibaba from being overtaken in value by PDD Holdings, the operator of the e-commerce platform Pinduoduo.

On its first day of trading through the program on Tuesday, Alibaba shares rose 4.2%, making it the second-best performer on the Hang Seng Index. Demand was notable, with 207 million shares changing hands, nearly four times the average over the past 30 days.

The program’s southbound channel allows investors with at least 500,000 yuan ($70,218) in assets in brokerage accounts to trade Alibaba and other Hong Kong-listed shares.

Chelsey Tam, analyst Morningstarsaid Alibaba’s inclusion is attractive not only because of the access it provides to Chinese investors, but because many prefer companies with high levels of transparency, dividends and share buybacks, factors that favor Alibaba over competitors such as PDD, which although showing greater growth, may not offer the same guarantees to investors.

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According to Morgan Stanley, mainland Chinese investors could invest between $17 billion and $37 billion in Alibaba shares in the next year, based on the assumption that mainland investors could account for between 8% and 17% of the company’s shares.

In other cases, Tencent rose 23% in the six months after its listing on Stock Connect in 2014. Meituan and Xiaomi saw gains of 12% and 14%, respectively, in the first six months after their listing in 2019, and both more than doubled in value in 12 months.

In addition, Tencent, Meituan and Xiaomi also attracted significant net investment inflows of US$1.8 billion, US$4.2 billion and US$759 million, respectively, in the first few months of their participation in the program.

On the other hand, Alibaba has faced regulatory tailwinds recently, as the conclusion of a three-year antitrust review by the Chinese government has removed one of the barriers holding back its actions.

While concerns persist over rising e-commerce competition in China and weak domestic demand amid the property crisis, Alibaba shares have risen 16% since their low in July, while the Hang Seng Index has fallen nearly 4% in the same period.

According to Daiwa analyst John Choi, Alibaba’s listing on Stock Connect could spark fresh buying interest from mainland investors, which could serve as a key catalyst for its stock price.