Alibaba’s Hong Kong Bet

SMITH BRAIN TRUST – Alibaba's stock rose nearly 7% in its first day of trading on the Hong Kong Stock Exchange – a strong showing for China’s e-commerce giant, which decided upon a secondary listing in Hong Kong – as Beijing called for Chinese companies to return to the domestic market.

Kislaya Prasad, research professor and academic director of the Center for Global Business at the University of Maryland’s Robert H. Smith School of Business, says the debut signifies both short-term and long-term considerations to sort through.

“From Alibaba's perspective – aside from any political imperative – a secondary listing in Hong Kong makes sense, Prasad says. “It makes it easier for Chinese nationals to invest in the company and offsets the uncertainty that Chinese companies – those already listed and those hoping to list in New York – face in the U.S. during the current climate.”

For the Hong Kong Stock Exchange, the decision by Alibaba and other firms to list in Hong Kong, and not another Chinese exchange, suggests Beijing’s long-term interest in retaining the status of Hong Kong as a financial hub. “There is definitely an element of signaling here that serves Beijing's immediate interests,” Prasad says. “The listing conveys the fact that Hong Kong's status will remain unchanged – both as one of the world's three most important exchanges and with respect to its status within China.”

Listed since 2014 at the New York Stock Exchange, Alibaba in August postponed its Hong Kong listing amid Hong Kong’s civil unrest, but revived its IPO plans in early November. “But despite how successful the offering was, it may have been even more successful if they had waited for the unrest to subside,” Prasad says, “which suggests that the choice of timing may have had a political element to it.”

The timing also points to a broader issue that waits to be decided. “Hong Kong's exchange has functioned within a broader institutional setting that we think of as being important for financial markets, embodying in particular the free flow of information and an independent judiciary,” Prasad says. “The open question is whether, in Beijing’s quest to quell the Hong Kong protests, these traditions will be compromised.”

“And if so, will Hong Kong’s financial markets continue to successfully attract capital in the long run? We will just have to wait to find out.”