(Bloomberg) – Several of Alibaba Group Holding’s largest investors have converted billions of dollars into U.S. stocks in part in Hong Kong in part to avoid potential U.S. sanctions and de-listings of major Chinese technology companies.
Temasek Group Holdings Pte., Baillie Gifford & Co., and Matthews Asia are one of the major shareholders swapping bets in the Chinese e-commerce giant to take advantage of new rules to reduce the switch to the mention of Alibaba in Hong Kong last year. Geopolitics is contributing to the shift, according to people familiar with the movements.
“Many long-term fund managers, especially those whose fund managers are based in Asia, are switching or considering switching from ADRs to shares in Hong Kong,” said Nelson Yan, head of investment in offshore capital markets at Creditease Wealth Management (Hong Kong ) Ltd., referring to U.S. bond receipts. “The demand for these ADRs in the US is now clouded by politics.”
The Alibaba stock changes are a sign that the Trump administration’s fierce rhetoric against Chinese tech companies is urging investors to take steps to prevent potential fallout. At the same time, as Chinese companies seek more duplicate advertising in Hong Kong, the movements threaten to turn the liquidity of New York shares.
Baillie Move
Baillie Gifford, whose partner and portfolio manager James Anderson told Bloomberg Television in March that Alibaba could become a $ 2 trillion company, traded 10.4 million shares in the United States worth over $ 2.67 billion in the second quarter. That’s about a fifth of their stake, and is the biggest change since it first bought shares in 2014.
The money manager, among Alibaba’s largest shareholders, converted the stake into shares in Hong Kong, according to a person familiar with the move. A spokesman for the Edinburgh company declined to comment.
A spokesman for state-owned investor Temasek of Singapore confirmed that it had lost half of its stake representing 12.1 million shares – worth about $ 3 billion – from the US to Hong Kong, and declined to comment further.
The issue has made a lot of sense to many institutional investors since May when the House approved S.945 overwhelmingly – a bill that could lead to Chinese companies being barred from listing on U.S. exchanges. Conditions include certifying that they are not under the control of foreign governments and allowing the Public Accounting Office to control the company.
Matthews Asia, which manages about $ 23.4 billion, distributed nearly three-quarters of its U.S. Alibaba shares in the second quarter, worth about $ 700 million. Much of that is now held in H shares in Hong Kong and in its Pacific Tiger Fund, whose chief executive is Sharat Shroff.
“Local does not really matter much – it’s about gaining access to liquidity and it’s about gaining access to the right pricing mechanism, so we continue to have a position in Alibaba, both through the Hong Kong listing and the listing in ‘ e FS, ”Shroff told clients in a July webcast.
Keywise Capital Management, which oversees $ 1.5 billion for global investors, including sovereign wealth funds and endowments, plans to invest in Hong Kong shares of dual-listed Chinese companies, said founder and chief investment officer Zheng Fang . The increased U.S. control of Chinese ADRs has caused investors to worry about the potential risks of holding these securities, he said.
Stock Connect
The shares in Hong Kong may also get a boost from MSCI’s plan to reduce the Chinese ADR weights in its index, while increasing Hong Kong’s shares, he said. Once reported in Hong Kong, these companies could be included in the stock connect arrangement with China, allowing them to attract support from mainland Chinese investors, he added.
Myriad Asset Management, the hedge fund firm led by Carl Huttenlocher, also exchanged most of its Alibaba ADRs for shares in Hong Kong, said a person with knowledge of the matter. With more of Alibaba’s peers listed in Hong Kong, it will be easier to compare valuations and make trades, the person said.
The stock movements stimulate all of Aliababa’s trade in Hong Kong. On a 50-day moving average basis, Hong Kong’s daily turnover now accounts for about 17% of the company’s total trade, up from a low of 13% in early June.
Investors in Hong Kong shares have been rewarded, with the share gaining 45% since listing in November, compared to a 35% jump in US shares over the same period in terms of local currency. Shares in Hong Kong may attract even more institutional investors if Alibaba joins the Hang Seng index on 7 September
“The majority of their shares are still in the U.S., but the move is already happening and that is being driven by long-term holders,” said Kenny Wen, Hong Kong-based strategist at Everbright Sun Hung Kai Co. “In the very long run, we cannot rule out the possibility for Hong Kong to become the primary list for Alibaba.”
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