Last Friday (31 December 2021), Alibaba rose as much as 9.5% to be the biggest point contributor to the Hang Seng Tech Index’s 4.5% gain as Chinese American depositary receipts saw its biggest rally in a decade since 2008. 
 
However, on the first trading day of the New Year, Alibaba gave back half of its Friday’s gains after falling as much as 4.1% – its most in two weeks – amid concerns that some investors may pare stake when the company coverts its US-listed ADRs into Hong Kong shares. 

Alibaba slips over concern over conversion of ADRs to HK stocks.

The Chinese ADR market in the US has come under pressure as investors were spooked by Beijing’s series of tightening regulations in the past year, which hit sectors from technology to education and real estate. The December delisting of Chinese ride-hailing giant Didi from the New York Stock Exchange, likely to be influenced by political pressure from China, has led to concerns that more Chinese companies listed in the US (ADRs) may be delisted. This has led to investors converting their ADRs to HK listed shares instead. 

ADRs are American depositary receipts, which serve as proxies for shares of foreign companies that list in the U.S.

According to UOB, investors also worry that the conversion of Chinese ADRs may be followed by share price declines, explaining the paring of stakes by some big investors in such shares.

In September 2021, Alibaba holders converted ADRs into about 670 million Hong Kong shares. Alibaba’s share price had dropped as much as 12.7% in the following 10 trading days after the conversion, according to Bloomberg calculation.