Morgan Stanley-China Equity Strategy Alibabas Southbound Inclusion Likel...-108520495.pdf

M2ExhibtChinaEquityStrategy|AsiaPacificAlibaba"sSouthboundInclusion:LikelihoodandImplicationsforFlows,Liquidity,andMoreMorganStanleyAsiaLimited+LauraWangEquityStrategistLaura.Wang@morganstanley.com+8522848-6853RaymondKLiuEquityStrategistRaymond.K.Liu@morganstanley.com+8522848-7293CatherineChenEquityStrategistCatherine.Chen@morganstanley.com+8523963-4186Alibaba"sinclusioninSouthboundStockConnectismorelikelyafteritsdual-primaryconversion,withSeptemberbeingtheearliesttheeventcouldoccur.Weexpectsomeinflowsbutnotmajor.WealsoseemajorshiftsinSouthboundflowdynamicsatthesectorandmarketlevel.OnMay14,2024,AlibabaannouncedthatitexpectstoconverttoadualprimarylistingstatusontheHongKongStockExchangebytheendofAugust2024(detailshere).Previously,AlibabaannouncedthatitwouldapplyforaprimarylistinginHongKonginJuly2022,buttheprimaryconversiondidnotoccur.qutySySreCg|AsPy|AcfCtcUuAet|cCteCp|o~Cut$~u1CA2|cCfASub2otpSo1CU|cm~oet|clCWebelievethatAlibaba"sstatuswithnon-compliantWeightedVotingRightsshouldnotbeahurdleanymore:1.Asdiscussedinthis2021report,whenHKExrelaxedsecondarylistingrequirements,itallowedADRswithdualprimarylistingstatustoretainnon-compliantWVRand/orVariableInterestEntitystructures.2.ZTOExpressgotincludedinSouthboundStockConnectonMarch13,2024asthefirstprimaryconversionwithnon-compliantWVRstructure(sameasAlibaba).Therefore,webelievethechanceofAlibaba"sSouthboundeligibilityafterprimaryconversionismuchhigher.wdC~utxtytuts1CteCS22o|m~fkCCC2otpSo1CutestcxCU|p2u~st|cCSsCsP~C~cfC|dCqAxAesCtp2ut~eCsPSsCsP~CdtoesCfS1C|dCg|AsPy|AcfCsoSftcxCU|AufCy~CSeC~Sou1CSeCg~2s~py~oC,lCWeshowdetailsoftheindicativetimelineinExhibit1andtheeligibilitycriteriainExhibit2.Forfurtherdetail,seeAlibaba"sInclusion–ACloserLook.wp2utUSst|cel•Upto~US$12bnincrementalinflowfromSouthboundduringthefirstsixmonthslikely,withriskskewedtothedownside•Southboundcouldown~7%ofallsharesbysixmonthsafterinclusion;inthelongtermthepercentagemaystabilizearoundthelowteens•Southbound"sincrementalsupportforliquidityandturnovercouldbelimited•Valuationboostisalsonotobvious•MajorchangesofSouthboundflowdestination–fromInternettoFinancialsandTelecomMorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.June2,202410:38PMGMTMUpdate2IndicativeTimelineExhibit1:IndicativetimelineforSouthboundInclusionofAlibaba"sPrimaryListingNov2019AlibabacompleteditssecondarylistinginHongKongMay2024Alibabarecentlyannouncedplanstoachievedual-primarylistingstatu