Investors are breathing a sigh of relief on Friday morning as major market benchmarks finally show some resolve after a difficult week. Starting at 11 a.m. ET is the Nasdaq Composite (^IXIC 0.93%) rose nearly 1%, and other indexes posted more modest gains on the day.
One area of the market that is performing particularly well on Friday is China. Several Chinese stocks are posting strong gains, with the market leader leading the way Alibaba Group (BABA 5.26%) one of the biggest movers. Read on to find out what’s happening with Alibaba and why investors are so excited about a potential initial public offering (IPO) of the company’s extensive holdings.
Cainiao is coming
Shares of Alibaba Group rose about 5% on Friday morning. The Chinese e-commerce giant is reportedly looking to take one of its subsidiaries public, and that’s creating excitement among investors at the prospect of unlocking some value from the conglomerate.
Cainiao Network Technology, Alibaba’s logistics company, plans to file for an IPO in Hong Kong. The filing, which could be filed as early as next week, could aim to raise $1 billion or more in capital that the company can use to expand its business amid strong trends toward growing long-term demand.
If this happens, the move could be the first of many such IPOs for companies under the Alibaba umbrella. In recent years, the market environment has not been particularly favorable for Alibaba to spin off or otherwise sell shares in wholly owned companies. But recent IPOs by other tech companies in the US and UK suggest the wait may finally be over. This could lead to companies like the grocery retailer Freshippo going public in the near future.
Could outside investors own more Chinese companies?
But Alibaba’s news alone wouldn’t justify the gains of other Chinese stocks, including some of Alibaba’s closest competitors. NetEase rose 6% on Friday morning, while Tencent Music Entertainment rose by 5% and Bilibili 7% added.
Broader gains in Chinese stocks came as reports suggested the Chinese government may be willing to consider easing restrictions that prevent foreign investors from acquiring too large a stake in a particular Chinese company. Currently, local companies are not allowed to have more than 30% of their equity owned by foreign investors. But with China’s stock market struggling and the overall economy slowing, it appears China is more willing to encourage outside investment if it could mean restarting the country’s economic growth engines.
There have already been some withdrawals of the restrictions. Last month, the Chinese government increased the number of virtual private network (VPN) service providers approved in its country. It also allowed foreign ownership of up to 50% in these VPN providers, signaling a shift that could spread to the entire Chinese stock market.
However, U.S. investors may still want to be cautious. Some lawmakers in Washington still want to limit the ability of Chinese companies to list on U.S. exchanges, citing inadequate disclosures and some problems with fraudulent behavior in the past. Furthermore, as national security becomes a greater concern due to the accelerated growth of technological innovation in areas such as artificial intelligence, the U.S. and China will have increasingly more at stake in their continued competition.
Alibaba shares remain well below their peak from a few years ago. It might take a lot more than spinoffs to restore China’s stock to its former glory, but at least today shareholders are celebrating.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group, Bilibili and NetEase. The Motley Fool has a disclosure policy.
Comments are closed.