HONG KONG (Reuters Breakingviews) - A new front has opened up in China’s biggest tech rivalry. Hong Kong investors can now own shares in both Alibaba and Tencent after the e-commerce giant’s local offering. If regulators permit, the pair will soon be fighting over mainland shareholders, as well as digital payments and cloud computing. Tencent’s scarcity value has been downgraded.
Strong demand in the financial hub helped pushed Alibaba’s shares up 6.6% on their Tuesday debut, as stock worth a whopping $1.8 billion changed hands. That’s equivalent to almost a fifth of the average daily turnover on the city’s entire bourse in October. Part of the frenzy was driven by Asia-focused funds and local punters, neither of whom previously had direct access to the $520 billion company’s New York-listed shares.
Alibaba’s arrival is awkward for its arch nemesis. Tencent’s Hong Kong-listed shares dipped 1% on Tuesday, underperforming the broader market. The company run by Pony Ma has long benefited from being by far the biggest publicly-traded Chinese internet company in Hong Kong. Its shares are also accessible to mainland investors through the city’s trading link with Shanghai and Shenzhen. Alibaba is not eligible for that scheme, because its primary listing remains in New York and its unorthodox corporate governance gives insiders extra clout. But given that Hong Kong regulators relaxed their rules to accommodate the company, it seems only a matter of time before mainland regulators do so too.
Shares of Tencent have typically fetched a valuation premium over Alibaba. Even now, the $410 billion company is valued at roughly 26 times expected earnings for the next 12 months, while its rival trades at 23 times. That gap may narrow as more investors are able to choose between them. Moreover, the $11 billion-plus that Alibaba raised from its Hong Kong listing gives it extra firepower to fight Tencent in battlegrounds ranging from video-streaming to fintech. The rivalry has entered a new phase.
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