U.S. investors soon should have a way to tap China's walled-off tech stocks from behind the Bamboo Curtain. The move comes just in time, offering potential access to the blockbuster Ant Group initial public offering (IPO).
Chinese stock regulators have approved the first set of index-tracking exchange traded funds (ETFs) based on the Nasdaq-style STAR Market in Shanghai. That's the market on which the Alibaba Group Holding (BABA) spinoff Ant Group plans to list its mainland shares in what promises to be the world's largest-ever IPO.
Ant Group, which runs the mobile payments superapp Alipay, filed papers late Tuesday for the Shanghai portion of its IPO. It won approval for the offering from the Shanghai Stock Exchange last week.
It plans to list simultaneously in Hong Kong, with an IPO seeking to raise a combined US$35 billion, according to Reuters. Such an offering, which could happen as early as next month, would value the whole company at US$250 billion.
Ant has increased the size of the offering after gauging early interest, according to Bloomberg. It is due to meet with Hong Kong stock exchange officials on Thursday. Alipay is omnipresent in China for mobile payments and has 711 million monthly active users worldwide, but Ant offers a full suite of e-financial services.
The company has raised its prospective valuation from US$225 billion and the offer size from US$30 billion. Saudi Aramco SSE:2222 has the largest IPO to date with a US$29.4 billion listing in Riyadh.
Four Chinese asset managers have been approved to create and issue ETFs that track the Shanghai Stock Exchange STAR50 Index. They already have attracted 100 billion yuan (US$14.1 billion) in investment, they said on Tuesday, five times their target.
Those four companies have prepared ETFs that will be available to investors in China. But KraneShares, which often creates interesting ETFs, has filed with U.S. stock regulators to offer the KraneShares SSE STAR Market 50 Index ETF, which it hopes to list on NYSE Arca under the ticker KSTR.
The four Chinese managers are ChinaAMC, E Fund Management, Huatai-PineBridge Fund Management and ICBC Credit Suisse Asset Management. The figures exceeded their wildest expectations, after setting out to raise around 5 billion yuan each.
The stock markets in mainland China are very much driven by retail investors. They tend to pile into stocks that are moving higher and are featured in the financial media, looking to day trade or track momentum rather than paying attention to any fundamentals.
The STAR50 index trades at 80x earnings, more than double Nasdaq's 36x. If all goes well with Ant's IPO, it should join the STAR50 index by next March.
Ant likely will open its books to the IPO after China's national day holiday and Golden Week, which runs from Oct. 1 through Oct. 7. Ant then would go public near the end of October, Reuters reports, though the timeline is subject to change.
Separately, five Chinese asset managers said they would start raising a combined 60 billion yuan (US$8.5 billion) for mutual funds that would take stock in Ant's IPO as strategic investors. Ant's Shanghai filing confirmed that several existing mutual funds will take on that role as well.
The five asset managers - ChinaAMC and E Fund Management again, as well as Penghua Fund Management, China Universal Asset Management and Zhong Ou Asset Management - would each raise 12 billion yuan, locking investors in for 18 months. Fund raising is due to start on Friday and run for two weeks.
Like tech stocks globally, China's STAR50 has seen a sharp correction, falling for five straight weeks. It is down 17% since its high in mid-July. The downturn in global tech coincided with the revelation that the Japanese company Softbank has been the "Nasdaq whale" driving huge volumes in tech-linked derivatives.
That pullback nevertheless leaves the STAR50 up 42.5% this year.