China Stock Ideas

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>>> This IPO is a measure of China's growing strength


By Julia Horowitz

CNN Business

October 25, 2020


https://www.cnn.com/2020/10/25/investing/stocks-week-ahead/index.html


When Ant Group prices its IPO in Shanghai and Hong Kong this week, it could set a new world record for a stock market listing. But it will also ram home a much bigger point.

What's happening: In finance and tech, China’s clout is growing just as its economy recovers from the pandemic in better shape than other big players.

Ant is the crown jewel of Jack Ma's tech empire, best known for its Alipay app that has more than 730 million monthly active users. On Tuesday, it's expected to announce that it will surpass the $29.4 billion Saudi Aramco's float raised last December by selling shares both in Hong Kong and on Shanghai's Star Market, China's answer to the Nasdaq.

For Beijing, which wants to encourage more seasoned investors to park their money in Chinese stocks and more Chinese tech companies to list their shares at home, it's poised to be a huge win.

"The Chinese government is more than happy to host a national champion on one of its major capital markets domestically at a time when many Chinese companies are facing greater political headwinds overseas," Xiaomeng Lu, senior geotechnology analyst at Eurasia Group, told me.

Lu said Beijing has been trying to send a message to China's top tech companies: "This is a difficult time, and we have your back."

A growing number of firms are listening as US-China tensions ramp up. There's little clarity on whether the presidential election in November will reset the relationship.

US threats and restrictions against Chinese tech companies like TikTok and WeChat send a warning. On Wall Street, Chinese firms also face additional scrutiny. Luckin Coffee was kicked off the Nasdaq following the disclosure of major accounting irregularities. US lawmakers, government agencies and stock exchanges have since taken steps aimed at limiting Beijing's access to America's vast capital markets.

"Chinese companies consider repatriation both to please [Beijing] and to insulate themselves from potential US action," Brock Silvers, chief investment officer at Kaiyuan Capital and former chief investment officer at Adamas Asset Management, told me.

In such an environment, a company like Ant has good reason to pursue a listing at home. Over the long term, that should be to China's benefit.

Ant's decision to opt for the Star Market, a pet project of Chinese President Xi Jinping, will give it a huge boost in legitimacy and value, Lu said, noting that the massive IPO will push the market capitalization of the Shanghai Stock Exchange, which includes the Star board, close to that of the Tokyo Stock Exchange. Silvers points out that the listing also gives China "greater control over an important company in a cutting edge sector."

Watch this space: China's markets are still "fairly immature" and "highly volatile," per Lu. But a listing like Ant's will certainly help raise their profile.

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