Alibaba's Hong Kong Listing Upgrade to Attract Mainland Investments

Alibaba's upgrade to a primary listing in Hong Kong is expected to attract billions from mainland China. The move makes Alibaba eligible for Stock Connect, a program that allows cross-border trading between Hong Kong, Shanghai, and Shenzhen.

Morgan Stanley estimates that $12 billion could flow into Alibaba within six months, boosting its market capitalization by 6%. This comes as Alibaba seeks new investors after SoftBank, its former top shareholder, significantly reduced its stake.

Mainland investors are flocking to Hong Kong due to poor performance in the mainland market and a weakening yuan. Stock Connect saw a record $59.2 billion in net purchases from January to August, double the previous year.

International investors are pulling out of mainland China, selling a net $945 million worth of equities this year. This marks the first time in history that annual net outflows might occur.

The Shanghai Composite Index is at a seven-month low, trading below 2,800, down 10% since May. Meanwhile, Hong Kong's market has declined by just over 3%.

The Hang Seng Stock Connect China AH Premium Index shows that Hong Kong stocks are nearly 50% undervalued compared to their mainland counterparts. This disparity attracts mainland investors.

Chinese authorities are concerned about capital outflows, withholding some transaction data and promoting optimistic economic views. This has led to suspicions of hidden bad news, delaying market recovery.

Funds leaving China are finding homes in Japan and India. Alibaba's inclusion in Stock Connect could further drive mainland investment into these markets, potentially freeing up $3.2 billion for international investments.