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Bloomberg
Alibaba Group Holding Ltd’s landmark $11 billion share sale and listing in Hong Kong on November 26 was galvanised by expectations the Chinese e-commerce giant will attract a vast pool of capital from its home country. But some investors caution against unrealistic expectations, especially by mainland investors, and highlight certain restrictions that still govern — and potentially curtail — trading activity in Alibaba’s Hong Kong shares.
The company’s sheer size and the unprecedented nature of its secondary listing (the primary listing is still in New York) and unique management structure present challenges for investors hoping to gauge everything from Alibaba’s inclusion in indexes — crucial because they direct the flow of capital from tracker funds — to its listing status.
Alibaba will be added to Hang Seng Composite Index on December 9, but it isn’t qualified to join the benchmark Hang Seng Index or the Hang Seng China Enterprise Index because they comprise only primary listings and corporations without so-called weighted voting rights (WVR).
Membership of the 50-member Hang Seng is coveted by corporations because it could trigger billions of dollars of inflows from funds tracking the 50-year-old gauge. Hang Seng Indexes Co plans a consultation in the first quarter to discuss issues including whether firms with weighted voting rights, like Alibaba, should be eligible for the HSI. Any conclusions should be published by May, Daniel Wong, its head of research and analytics, said in a statement. Even if the index compiler decides to overhaul its rules, the required process means it may not be until late 2020 before Alibaba could join the major Hang Seng benchmarks. Representatives for HKEx and Alibaba declined to comment.
China doesn’t spell out criteria or qualifications for joining the programme, which allows mainland investors to buy stocks listed in Hong Kong. Unlike the HSI, the program isn’t limited to primary listings. It does require review by the China Securities Regulatory Commission, the stock market watchdog.
The first companies in stock connect with weighted voting rights were Meituan Dianping and Xiaomi Corp, which mainland investors got access to in late October through the programme.