China’s retail investors can finally trade Alibaba shares 10 years after it went public — thanks to a US law

Imagine if American retail investors couldn’t trade Amazon. For years, that’s what it was like for China’s legions of mom and pop investors when it comes to Alibaba, the country’s biggest online retailer.

But this week, Alibaba finally joined Mainland China’s Southbound Stock Connect program after it obtained a primary listing on the Hong Kong Stock Exchange (HKEX). The program allows mainland China investors to access eligible Hong Kong shares. 

In some ways, the decision to file for a HKEX listing was fueled by a 2020 US law. Alibaba first went public on the New York Stock Exchange in 2014. Then in 2020, Congress passed the Holding Foreign Companies Accountable Act, which said that foreign companies publicly listed in the US will be banned if they couldn’t comply with Public Company Accounting Oversight Board audits.

It also targeted specifically at China and, among other things, asked Chinese companies to disclose their connections to the Chinese Communist Party. Five state-owned Chinese companies, including China’s leading energy and insurance company, voluntarily delisted themselves from the NYSE. Other companies, including Alibaba, Netease, Baidu and Bilibili, chose to file for a secondary listing in Hong Kong as a backup option for their investors if they were forced to delist from the NYSE.

In late 2022, the SEC said that it was able to audit Chinese companies listed in the US, so the risk of delisting was gone. But Alibaba still proceeded to pursue a primary listing in HKEX, which finally went through last month, five years after getting its secondary listing.

Shares were up 4.2% in Hong Kong on Sept. 10, the first day of trading with the Stock Connect in effect. Investors bought over $8.5 billion HKD of Alibaba’s stock that day via the program, with purchases from Shenzhen and Shanghai accounted for about half of the day’s turnover.

As a result of the Chinese government’s regulatory crackdown on leading big tech companies beginning in late 2020, Alibaba’s shares have fallen more than 70% from their October 2020 peak. 

“The added access and additional liquidity from Mainland retail is actually quite significant,” said Kevin Xu, the founder of Interconnected Capital, a hedge fund that invests in A.I. ventures. “But that doesn’t change the fact that the economy is still very challenged.”

There may be “a bit of an unfortunate timing”, he added, as the first day that the Stock Exchange program became official coincided with the release of a Chinese CPI report that showed that deflationary forces continue to dominate.