InvestorPlace contributor Brad Moon recently covered the news about Alibaba (NYSE: BABA ) filing for a Hong Kong listing that could see it sell up to $20 billion in Alibaba stock. More than that, it gives the ecommerce giant a secondary stock listing in Hong Kong, making it much easier for Chinese investors to own BABA stock.
Source: Charles Chan Via Flickr
Moon put it this way:
“A company of this size choosing to list in Hong King sends the message that Chinese companies don’t necessarily need to seek an American IPO to succeed. Making the situation worse, current tensions between China and the U.S. have Chinese companies looking for ways to reduce their exposure to American investment…Other Chinese stocks that are traded in the U.S. could take the same route as BABA stock and also look to Hong Kong for a listing.”
In this scenario, Chinese companies could eventually skip New York altogether, opting to list closer to home, making it much more difficult for U.S. investors to get in on the tech action in that country.
It’s a Problem for Investors Everywhere
This isn’t a problem for just U.S. investors.
Regular Joe’s around the world, despite technology and globalization, still have a hard time buying stocks outside their own country. It’s a big reason ETFs have taken off. If you can’t buy Remgro (OTCMKTS: RMGOF ), a South American holding company controlled by the Rupert family , you buy Franklin FTSE South Africa ETF (NYSEARCA: FLZA ) instead, the ETF’s 11th largest holding.
If you’re a believer in modern portfolio theory and efficient markets, buying FLZA makes a whole lot of sense. However, if you want to build a global portfolio of companies that are good capital allocators, as Remgro is, it’s a much more difficult task.
Why can’t someone in China go to their computer and buy Alibaba without having to set up accounts with a broker that does business on U.S. stock exchanges?
Here in Canada, Lululemon (NASDAQ: LULU ) used to be dual-listed in Toronto and NASDAQ.
In June 2013, the Vancouver-based apparel company delisted its shares on the Toronto Stock Exchange, opting to go with a sole listing on NASDAQ. For them, it was all about cost. By keeping the listing active, regulatory filings, etc. At the time, the TSX was moving 90,000 shares a day of LULU compared to 1.9 million on NASDAQ.
“They had very thin volume, considering the expenses of staying in the exchange. And I think they decided that was unwise. It does make sense at the end of the day that they are carefully managing expenses,” said Betty Chen, senior vice president at Wedbush Securities Inc. in San Francisco at the time of the delisting.
Today, if I want to buy Lululemon, I go to my online brokerage account, paying a commission for the trade and a foreign exchange fee to convert Canadian cash to U.S. cash. However, if I want to go outside Canada or the U.S., my life gets a lot more complicated.
Why Does This Happen?
With the advent of blockchain technology, I ought to be able to make financial transactions anywhere in the world, bypassing the traditional brokerage system.
Yes, I’m sure this raises plenty of red flags about money laundering, etc., but like the photocopier (the 8.5 by 11 piece of paper you lay on the glass seems to be in a different place for every manufacturer) it would be far more efficient to have one system that works well in every part of the world in a seamless manner.
The fact that Alibaba has to list Alibaba stock in Hong Kong to appeal to Chinese investors, and the Chinese government to a lesser extent, suggests the global sourcing of capital remains incredibly backward and old school.
I get that this secondary listing has politics written all over it given the tensions between the U.S. and China, but to me, this says less about Alibaba stock and more about the failure of globalization.
If the world were truly global, I could buy 100 shares of Remgro or a stock listed in Hong Kong or Beijing for $4.99. I can’t. Can you? I doubt it.
The Bottom Line on Alibaba Stock
If you own BABA, I don’t think this in and of itself does anything for the stock in the long haul.
The $20 billion it will raise from the secondary listing should come in handy as it continues to grow its ecommerce and cloud businesses outside China. That should be good for its stock.
However, I wish we didn’t have to have this conversation. One listing should be suitable for investors anywhere in the world. Full stop. The fact that it’s not is troubling, to say the least.
At the time of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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