(Bloomberg) — Alibaba Group Holding Ltd.’s impending listing on the Stock Connect market could free up as much as $3.2 billion in cash in global markets, with analysts saying Japanese and U.S. stocks could benefit.
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The expansion will allow qualified domestic institutional investor funds to purchase Alibaba shares through the link rather than accessing them through their foreign exchange quota. Asset managers can then use the freed-up quota to buy other stocks, including foreign ones.
The inclusion is likely to provide a further boost to foreign stocks such as U.S. and Japanese stocks, which have significantly outperformed Chinese stocks this year. The benchmark CSI 300 index has lost more than 3% since the end of December, while the S&P 500 and Topix index have each gained more than 10%.
“US stocks simply offer better returns, so there will be unstoppable demand, that’s the hard truth,” says Yu Aibin, fund manager at Shenzhen Jointfull Capital Management Co. “For larger investors, positioning through QDII funds, even with some premiums, is still a good deal because the cost of capital is lower than through other channels such as cross-border swaps.”
QDII allows institutional investors who meet certain conditions to invest in foreign securities within prescribed quotas. Analysts believe Alibaba could become a Connect member as early as September 9. The initial listing, which takes effect on Wednesday, is expected to qualify the company for southbound trading after the next review in early September.
Bloomberg Intelligence estimates that the total QDII quota released will be $3.2 billion, more than the $2.3 billion added in June when China lifted the cap on foreign securities investment. The total approved quota for asset managers was increased by $1.6 billion at the time.
To be clear, the positive effects will not be visible immediately.
Bloomberg Intelligence expects it will take three years for the quota to be fully available, as asset managers tend to gradually reduce their holdings through redemptions and subscriptions. Bloomberg Intelligence noted that it took two years for the Shanghai-listed Huatai-PineBridge CSOP Hang Seng Tech Index ETF to switch 71% of its underlying Hong Kong-listed product from QDII to Stock Connect.
– With support from Jack Wang.
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