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(Bloomberg) -- Alibaba Group Holding Ltd. may attract at least $16 billion of Chinese money by shifting to a primary listing in Hong Kong, strategists say, getting a much-needed boost as its stock struggles to bottom out.
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The move paves the way for the e-commerce giant to be included in the city’s trading links with mainland bourses, allowing an influx of new capital. Chinese investors hold around 7% stake of firms included in the links, suggesting an inflow of $16 billion into Alibaba over the next few years, according to Goldman Sachs Group Inc. Sanford C. Bernstein estimates $21 billion.
Such hopes are timely for Alibaba, whose stock is still down more than 60% from an October 2020 peak as brief bouts of recovery this year have failed to last amid regulatory fears. Elevating its listing status from secondary will also help the firm reduce reliance on investors in the US and prepare for an eventual delisting there as an auditing standoff between Washington and Beijing continues.
Read: Why a Primary Listing in Hong Kong Matters for Alibaba, BiliBili
“It opens up an efficient portfolio flow channel for Hong Kong-listed companies to expand their investor base and tap into the deep onshore equity liquidity pool,” Goldman Sachs strategists including Kinger Lau wrote in a note on Wednesday.
Mainland funds tend to be contrarian investors, loading up on shares of the nation’s tech giants even as foreigners sell. Tencent Holdings Ltd. has been the most purchased Hong Kong-listed stock via the trading links since the tech rout deepened from February 2021, while Meituan and Xiaomi Corp. also rank among the top of their shopping list, Bloomberg-compiled data as of end-May show.
“There are still some in the mainland who hold on to belief in the power of the internet economy,” said He Qi, fund manager at Huatai Pinebridge Fund Management. “Being able to buy Alibaba shares with yuan will be good for its valuation. I think that a valuation increase of 50% from current levels is reasonable.”
The listing move can also boost Alibaba’s trading turnover in Hong Kong. Although more than a half of its shares have been registered in the city’s clearing system, the stock’s turnover has remained at just one fifth of that of American Depositary Receipts in the first six months of 2022.
“I will regard this as a preparatory and proactive measure for the potential involuntary delisting from the US due to accounting records issue faced by Chinese issuers,” said Billy Au, partner of Mayer Brown.