Make Way For Prince Alibaba

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What's going on?

According to a report in The Wall Street Journal, Chinese conglomerate Alibaba is mulling a so-called “secondary” listing of its shares on a Chinese stock exchange. That would mark a major step forward in the opening up of China’s financial markets…

What does this mean?

Even though Alibaba is a Chinese company, its stock isn’t actually publicly traded there. Investors who want to buy Alibaba stock have to go through the New York Stock Exchange, where an Alibaba subsidiary listed shares back in 2015. But that may be changing, with Alibaba apparently in talks with the Chinese government to issue additional stock in China.

Among other restrictions, China currently forbids companies who have IPO’d in a foreign country to sell shares on a domestic stock exchange – even though many big Chinese companies like Alibaba have opted for overseas listings, given the lighter regulatory burden and deeper roster of investors. However, China’s government now seems up for making the rules a bit more flexible…

Why should I care?

For markets: Shares of Alibaba gained 3% on Thursday.

Alibaba’s US-listed shares have more than doubled in value since its 2015 IPO, and other Chinese tech stocks traded in foreign markets (like Tencent and, to a lesser extent, Baidu) have also performed consistently well. Those steady gains are one reason why the Chinese government might ease its stock market regulations: essentially, it may want investors back home to benefit from the success of homegrown talent (tweet this).

The bigger picture: Chinese financial markets are slowly continuing to open up.

While there are still plenty of restrictions, the country’s recent steps towards liberalizing markets are now bearing fruit: just this week, MSCI (a company that designs widely traded stock indices) launched twelve new indices tracking not just large Chinese corporations but small and medium-sized enterprises – which is kind of like a global referee saying that China’s stock market is ready for more foreigners.

Originally posted as part of the Finimize daily email.

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