China A shares + Alibaba ($BABA) =$20 Billion

Some quick thoughts from KraneShares CIO – Brendan Ahern.  

  • MSCI’s Semi Annual Index Rebalance is taking place today which required MSCI benchmarked passive vehicles to buy Chinese A shares at the close. Northbound Connect volumes were very high running nearly 2X the 1 year average as investors bought a net (buys minus sells) $805mm of mainland stocks. To fund the trade investors had to sell stocks to fund their buys. Taiwan declined on the day as its weight will drop while Tencent had a massive 8.8mm share trade at the close.  A media source quoted UBS predicting $70B will flow into mainland equities this year due the MSCI inclusion.
  • Bloomberg reported that Alibaba, $BABA,  is considering a second listing in Hong Kong that could raise $20B. Alibaba chose to list in the US in order to garner global flows back in September 2014 but also because the HK Stock Exchange didn’t allow dual share class popular with tech companies (ie $FB, $GOOGL, etc). Stock Connect launched after Alibaba’s IPO though Southbound Connect would allow mainland investors access to the company. The company may believe that the US listing doesn’t properly value the company as it has traded in the last year on trade war news rather the company’s fundamentals (P/E 32 Forward P/E 23). This is despite the company having no US revenue. Semiconductor Manufacturing International Corp (SMIC), a large domestic maker of semis, announced it would delist its NYSE ADR (ticker SMI) due to low volumes (1 year average is just 200k shares versus the HK listing’s 30mm 1 year average volume) and the regulatory cost. It is an unusual move though some may speculate if it is trade war related. As a friend likes to say, capital goes where it is treated best.

Personally, I think the A shares rebalance has been well telegraphed to investors and may be having a disappointing impact due to the trade wars. However, this is short term  thinking and simply means that investors are getting in at a better price than originally anticipated. best guess- this probably means they will be long term holders.

The information about Alibaba is new and needs more research. $20B is a lot of capital and seems to be going to the Company. The global momentum behind this Company – including Alipay – is exciting and something to watch for generations. Alipay now has a payment scanner at

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