Alleviating Alibaba's Negative Perception; Impetus For Dual-Listing; JD.Com's Unit IPOs

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ALT Perspective


  • Retaliatory missile attacks by Iran on Iraqi military bases housing U.S. forces and an 'accidental' downing of a passenger plane didn't prevent the stock market indices from hitting new highs.
  • Following the footsteps of Alibaba, Baidu,, and NetEase are reportedly in talks for a secondary listing on the Hong Kong bourse. I explain why's impetus is stronger.
  • Given polarized comments on Alibaba in my prior articles, I suggest ways readers could get a better understanding of Alibaba's rise to help dispel negative perceptions on the internet titan.
  • I update on the plans by's hived off units to launch their respective IPOs.

By ALT Perspective

The world began the new year with World War Three trending on social media but a series of memes generated appeared to trivialize the gravity of the matter. Perhaps the meme creators were right to stay calm. Last week, we experienced ballistic missile launches on Iraqi military bases housing U.S. forces by Iran in retaliation for the U.S. drone strike that killed a top Iranian general, Qasem Soleimani, and an 'accidental' downing of a Boeing 737-800 plane which killed all 176 people on board. Yet, investors were unfazed by the tensions and uncertainty, sending the stock market indices to fresh record highs.

Image source

With the Iranian government seemingly complying with a "Don't escalate" message from the Trump Administration, the U.S.-Iran crisis could potentially see a less risky resolution than initially anticipated, providing investors with a shot of confidence in the continued momentum in the stock markets.

Stocks of Chinese companies (NYSEARCA:CQQQ)(NYSEARCA:FXI) enjoyed an additional lift upwards from the news that Chinese Vice-Premier Liu He, China's chief trade negotiator, would travel to the U.S. to sign the phase one deal on January 15. The bevy of Chinese internet stocks similarly benefited, with the majority of them ending the week in positive territory.

TAL Education (TAL) piled on fresh gains for five consecutive days, helping it head the leader board with a nearly 10 percent increase in its share price over the previous week. As recently as mid-December, I highlighted TAL Education as providing an auxiliary service deemed valuable to the Chinese market - equipping the waiting area with television screens relaying live the happenings in the classrooms so that 'helicopter parents' can monitor the lesson proceedings - something that companies relying on copying Western practices wouldn't be able to come up with.

An outlet of TAL Education's First Leap where parents can view the classroom proceedings televised on screens.An outlet of TAL Education

Source: ALT Perspective

The Chinese Internet sector representative ETF, the KraneShares CSI China Internet ETF (NYSEARCA:KWEB), closed up 3.73 percent for the week. Besides TAL Education, the KWEB ETF was also supported by major holding Baidu (NASDAQ:BIDU) which rose 8.07 percent last week, building on its nearly 5 percent gain the prior week. Not bad for a company derided as an also-ran for much of last year, despite its promising developments in the field of artificial intelligence. Heavyweights Tencent (OTCPK:TCEHY)(OTCPK:TCTZF) and NetEase (NASDAQ:NTES) provided further boosts with gains of 5.89 percent and 4.40 percent respectively.

As explained in a past issue of the Chinese Internet Weekly, I found the KWEB ETF holding the most representative stocks in the sector. As such, an overview of the week's share price movements of the top few holdings of KWEB as compared with the ETF itself is provided as follows for convenient reference especially for the stocks mentioned in this article. In the subsequent sections, I will elaborate on the plans by Baidu, (TCOM, formerly and NetEase for secondary listing on the Hong Kong Stock Exchange (OTCPK:HKXCY). I will also add on to the discussion regarding misplaced fears about Alibaba (NYSE:BABA). I end with the potential initial public offerings of the hived out units of (NASDAQ:JD).

ChartData by YCharts

Alibaba's successful secondary listing enticing peers in the Chinese internet sector to follow suit

In November last year, Alibaba made the bold decision to proceed with its high-profile US$13 billion dual listing efforts on the Hong Kong bourse despite escalating violence in the months-long protest movement. The Chinese technology giant would have reduced the dilution had it delayed the secondary listing given its valuation increase since then. However, it's a decision made that others could only debate in hindsight.

Since Alibaba has achieved a victory of sorts with the dual listing exercise, it is not surprising that its Chinese peers are raring to go ahead with their secondary-listing plans. Barely two weeks into the new year, other big names in the China internet scene Baidu, and NetEase have already been reported to be in talks for a secondary listing on the Hong Kong bourse. Names were also dropped in's case, where the company was reported to have held talks with China International Capital Corp., JPMorgan (JPM), and Morgan Stanley (MS).

Such speculations have helped fuel the share price appreciation in the two weeks, thanks to well-known Chinese bloggers revealing the scoop on public WeChat accounts. The optimism is despite that the steps said to be taken by Baidu - conducting an internal assessment of a secondary listing, hiring representatives in Hong Kong, and contacting some large institutions in the city - are so generic that every large-cap Chinese internet company might potentially be doing so in light of the risk pertaining to being solely listed in the US.

Nevertheless, there are good reasons to believe something is brewing. Besides the drivers mentioned earlier, the Hong Kong Stock Exchange is also motivated to grow its revenue, with its stellar performance as the world’s largest listings market for a seventh time in 11 years. Accounting firm PricewaterhouseCoopers believes that the Hong Kong bourse could continue benefiting from the reforms introduced in 2018 and remain among the top three centers globally for initial public offerings in 2020.

Of the three suspects, is the only one in net financial debt. NetEase and Baidu are net cash positive. has about US$700 million worth of convertible bonds due in July. Based on the last closing price, the shares of is 32 percent lower than the agreed convertible price of US$54.

ChartData by YCharts is also the only one among the three whose share price has been stagnant the past six months. New shares issued at the highs would fetch more funds at a lower dilution. The reverse is true and that would be the case for but I suppose it's the lesser of the evils. A successful secondary listing could raise its profile and valuation given that Asian investors are more familiar with the company and better placed to appreciate its long-term prospects.

ChartData by YCharts

The additional funds raised would also provide with ammunition to fight Meituan-Dianping (MEIT)(OTCPK:MPNGF)(OTCPK:MPNGY) which has become a formidable rival in the travel space or make appropriate acquisitions. A larger carrot comes in the form of the Shanghai-Shenzhen-Hong Kong Stock Connects which enable Chinese mainland retail investors who have fewer investment options compared with Americans to purchase shares listed on the Hong Kong Stock Exchange. Eligibility for the program is not automatic but the companies have to first get listed on the Hong Kong bourse to begin the process.

A better understanding of Alibaba's rise could help dispel negative perceptions on the internet titan

While we are on the topic of dual-listing, I would like to comment on the arduous journey Alibaba faced with its U.S. listing. When Alibaba was listed in the U.S. instead of Hong Kong or other Chinese markets, there were suspicions raised that the company did so because it wanted to defraud Americans of their money. The fact that the Hong Kong Stock Exchange did not allow the dual-class structure that Alibaba was under was conveniently ignored.

Some reasoned Alibaba wasn’t allowed to be listed in China because the government was aware of their nefarious acts and would not want Chinese investors to get hurt. Another ‘theory’ goes whereby allowing the average Chinese investors into Alibaba would make it difficult for the government to “take over” the company as the consequence would be shareholders lose their investments.

Well, now Alibaba is tradable via the Hong Kong Stock Exchange, and not that readers need reminding but Hong Kong is a part of China. Interestingly, recently I came across comments that it didn’t matter much since Hong Kong residents are ruled under a different system and if they are cheated of their investments, they could raise the matter through the courts or protest on the streets to seek redress, unlike those on the mainland.

Again, the possibility that Alibaba shares could be soon owned by mainland Chinese via the Stock Connect program is brushed aside. Furthermore, mainland Chinese are already able to purchase the shares of other Chinese internet titans like Meituan-Dianping, Xiaomi (XI), and Tencent Holdings. In 2019, when Hong Kong was mired in massive protests and violence in the second half of the year, mainland investors were unfazed.

In fact, purchases of Hong Kong stocks by mainland investors tripled in value on a net basis last year, even as the city experienced an exodus of international funds. Are the critics saying only Alibaba is the black sheep (no pun intended) while Tencent, Meituan-Dianping, and Xiaomi are clean? I don’t see them advocating the latter group either.

A positive outcome of Alibaba’s share price hitting fresh record highs every other day meant more interest, often fresh ones, in the company. I am limited to providing selected updates on Chinese internet stocks in my weekly column. I encourage readers who are new to Alibaba to check out the book titled Alibaba: The House That Jack Ma Built written by Duncan Clark for the history of the company and how it became successful, including a mini-biography of Jack Ma.

The level of details provided by the author would help readers understand how Alibaba became what it is today, not by manipulation of financial numbers but a determined effort to empower businesses in connecting with customers and an evolution of this initial business-to-business endeavor. If you are tight with time, you might want to listen to the audiobook version.

From reading the above-mentioned book, I realized that accusations of being a fraudster were nothing new to Jack Ma. While working on the predecessor of, called China Pages, an online directory of businesses in China, Jack Ma had to market the power of the Internet and the benefits of having an online presence to clueless businessmen in China, where very few Chinese had any awareness of the Internet, not to mention use it. Jack Ma demanded a sum deemed hefty at that time for the service, which the clients would only be able to see their company web pages via printed snapshots, as internet access was not available.

Not surprisingly, many of those approached suspected he was trying to cheat them of their money. Clients who took a leap of faith with Jack Ma and the internet saw roaring businesses from international customers who got to know the companies via their web pages, which were the few that foreigners could find. In a similar vein, investors who have the foresight and appetite to take a stake in Alibaba despite never being able to have a complete understanding of the company might be well-rewarded in the future.

At the risk of sounding egoistic, I also recommend my past articles on Alibaba where I share my thoughts regarding the company's developments and related events in the past three years. As a bonus, you might find the accompanying comments from fellow Seeking Alpha members beneficial to your understanding. In addition, the past issues of Chinese Internet Weekly might prove interesting as well.

Chinese internet companies aren't giving up on the U.S. markets yet

With all the talks about who's up next for dual listing outside of the U.S., it might seem surprising that we are still hearing about Chinese internet companies making plans to list their business units in the U.S. The SA news feed alerted that (WUBA) is seeking a U.S. initial public offering of its home online service unit for a valuation of up to $2 billion, nearly a fifth of its market capitalization, citing Bloomberg as a source.

Last month, Reuters broke the news that the logistics unit of Chinese e-commerce company, JD Logistics, "held early discussions with banks about a potential overseas IPO." The IPO could raise $8 billion to $10 billion with a valuation target of at least $30 billion. If this target is met at the minimum level, JD Logistics would have more than doubled its valuation from two years ago when it raised $2.5 billion in a funding round. Although it is not yet certain if the listing would happen in Hong Kong or New York, at least the latter is not eliminated as an option.

Source: has more on its plate. Its healthcare arm, JD Health, was ranked as the most valuable among 22 new unicorns that emerged in China last year and No. 2 worldwide. Its latest funding round of US$1 billion in November valued the start-up at roughly US$7 billion. Xin Lijun, the chief executive of JD Health, has revealed in an interview the healthcare unit has plans for an IPO though a timeline has not been set.

JD Digits, the digital arm of the e-commerce giant specializing in data technology, AI and IoT, was reportedly valued at US$18 billion. While nothing is said of its IPO plans, it's a matter of time speculations would surface, especially when the dust for the IPO of JD Logistics settles.

This article was written by

ALT Perspective profile picture
I am honored to have been categorized as a 5-Star financial expert and ranked among the top 2% of financial bloggers on TipRanks in 2017/18. For a period, I was among the top 3 “Opinion Leaders” for Insider Ownership and Services, as well as top 5 for Long Ideas and Fund Holdings. I am an avid reader of market news and company publications with the aim of improving my investment acumen. I enjoy expressing my findings and opinions through writings. My appreciation and understanding of business strategies improved to a whole new level since completing an MBA (Distinction) from a FT100 MBA school. I have worked in companies with businesses that span multiple industries, according me with the exposure to a myriad of sectors.Check out my Author's Picks and over 190 Editor's Picks, among the highest in Seeking Alpha, if not the most.

Disclosure: I am/we are long BABA, BIDU, JD, NTES, TCEHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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