Alibaba’s Sudden ADR Discount Shows Fear of US-China Decoupling

Charlotte Yang

Fri, Mar 7, 2025, 7:10 AM 5 min read

(Bloomberg) -- Donald Trump’s propulsion to restrict US investments successful China is investigating what successful mentation should beryllium an ironclad fiscal narration — the choky nexus betwixt Chinese shares trading successful New York and Hong Kong.

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Alibaba Group Holding Ltd.’s US shares traded astatine an mean 2.1% discount to those successful Hong Kong past week — astatine 1 constituent reaching the widest since 2022. A akin signifier appeared for Baidu Inc. and NetEase Inc., with their American depositary receipts trading astatine their cheapest against Hong Kong peers successful 5 months.

The divergence, which follows Trump’s Feb. 21 directive to tighten scrutiny of pension funds’ investments into Chinese stocks, is an aberration that immoderate analysts pass could go much communal arsenic the US president takes an progressively hawkish stance toward China.

While arbitrageurs person beardown incentives to support prices successful the 2 markets aligned, capitalist flows tin alteration dramatically if US institutions look regulatory unit to merchantability astatine a clip erstwhile counterparts successful Hong Kong are buying connected optimism implicit the artificial quality boom. It points to what could go a longer-term inclination of fiscal decoupling betwixt the world’s 2 largest economies.

“If immoderate US argumentation requires definite types of US investors to divest their holding successful definite Chinese stocks, and arsenic US investors’ positions are much concentrated successful ADRs, ADRs could spot persistent flow-selling,” said Winnie Wu, main China equity strategist of BofA Securities successful Hong Kong. “Hong Kong shares could beryllium comparatively immune.”

While a midweek surge successful ADRs — pursuing Beijing’s forceful economical maturation extremity and a committedness to prioritize depletion — has reduced their discount for this week, the spread could widen should Trump amp up his pugnacious stance against China.

On Friday, Alibaba’s Hong Kong-listed shares edged lower, erasing a summation of arsenic overmuch arsenic 3.6% successful Hong Kong. Still, its banal has rallied astir 80% since a January low. Meanwhile, its American Depositary Receipts roseate 3.2%.

Read: China Sets Bullish Growth Goal of About 5%, Despite US Tariffs

Investors are reminded of the occurrence successful 2022, erstwhile bilateral tensions pushed Chinese firms to the brink of a wide delisting from US exchanges. That year, Alibaba’s shares successful New York traded astatine a discount much often than astatine a premium to those successful Hong Kong, astatine 1 constituent widening to astir 8%.