Investors in China Can't Wait to Finally Own Alibaba Shares

(Bloomberg) -- Most mainland investors can still only watch gains in Alibaba Group Holding Ltd., as China’s most valuable listed company extends increases after its Hong Kong stock exchange debut.

Fund mangers say the shares will be a must-have once they are included into the city’s trading links with the mainland, timing of which remains uncertain. The industry is unfazed the company’s U.S.-listed equity has nearly tripled in price since September 2014’s initial public offering, predicting that Chinese investors’ familiarity with the e-commerce firm will push Alibaba’s market valuation higher still.

“It’s a unique and rare asset -- like Tencent and Meituan -- that can’t be found in mainland-listed stocks,” said Qu Shaohua, managing director at Acroguardian Investment Co. “Though we don’t own Alibaba shares yet, I think it’s important that we do once it becomes available through the stock connect -- at the right price.”

The stock is eligible to join the Hang Seng Composite Index, of which many components can be traded through Chinese exchanges’ trading links with Hong Kong’s. But due to Alibaba’s unequal voting rights structure, its shares must trade for some seven months in Hong Kong and meet other requirements in areas like trading volume before being included into the stock connect, according to rules published by the Shanghai and Shenzhen stock exchanges.

The mainland bourses didn’t immediately reply to faxes, calls and emails seeking comment on Alibaba’s eligibility for the stock links.

Jiang Liangqing, a fund manager at Ruisen Capital Management in Beijing, has Alibaba high on his shopping list and expects other institutional investors to add the stock as an “essential part” of their portfolio, just like they did with Tencent Holdings Ltd. when its shares traded in the city became accessible to mainland investors a few years back.

Alibaba finished up 3% on Wednesday at HK$193.2, after gaining 6.6% on its debut. The closing price was around 25 times projected earnings for the next 12 months, versus Tencent’s 26 times and Meituan Dianping’s 117 times.

The company is not totally strange to Hong Kong’s stock market. Business-to-business marketplace Alibaba.com Ltd. was floated there in 2007, but Alibaba bought back the shares five years later at the IPO price.

The parent company then went public in New York in 2014 after being turned down by Hong Kong. It has created more than $250 billion in wealth for investors since its IPO.

Many mainland China traders say they are not fretting about missing out on the gains, instead projecting optimism that domestic investors -- who shop, order takeout and get groceries delivered through Alibaba’s services on a regular basis -- will give its Hong Kong stock a lofty valuation over time.

“Mainlanders are going to go crazy over this one, when they can finally buy a piece of Alibaba with yuan,” said He Qi, a fund manager at Huatai Pinebridge Fund Management whose mandate includes Hong Kong shares.

One of the latest Chinese technology firms to be eligible for trading by Chinese investors through the link with Hong Kong’s stock exchange, Meituan was the most net-purchased stock by mainland investors in the two weeks following its stock connect inclusion in late October, according to figures compiled by Bloomberg.

To be sure, some traders aren’t in a rush to jump on the Alibaba bandwagon, highlighting risks such as China’s still-slowing economic growth.

“Alibaba is faced with heightened competition, both on its home turf of e-commerce and in the booming short video realm,” added Wei Hai, chief investment officer at Jungle Gene Associates. The hedge fund holds a position in U.S. stocks.

--With assistance from Jeanny Yu, Lujia Yu and Mengchen Lu.

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net;Ken Wang in Beijing at ywang1690@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Fran Wang, Kevin Kingsbury

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With assistance from Bloomberg