Investors are breathing a sigh of relief on Friday morning, as major market benchmarks are finally showing a bit of resolve after a tough week. As of 11 a.m. ET, the Nasdaq Composite (^IXIC 2.02%) was up nearly 1%, and other indexes showed more modest gains on the day.
One area of the market that's doing particularly well on Friday is China. Several Chinese stocks are seeing sharp gains, with market leader Alibaba Group (BABA 0.59%) among the biggest movers. Keep reading to find out what's happening with Alibaba and why investors are so excited about a potential initial public offering (IPO) from among the company's extensive holdings.
Cainiao is coming
Shares of Alibaba Group were up about 5% Friday morning. The Chinese e-commerce giant is reportedly looking to bring one of its subsidiaries public, and that has investors excited about the prospect of unlocking some value from the conglomerate.
Cainiao Network Technology is Alibaba's logistics business, and it's planning to file for an initial public offering in Hong Kong. The filing, which could come as soon as next week, could seek to raise $1 billion or more in capital for the company to use in bulking up the size of its business in light of strong trends toward growing long-term demand.
If it happens, the move could be the first of many such IPOs for companies under the Alibaba corporate umbrella. For the past several years, the market environment hasn't been particularly favorable for Alibaba to seek to spin off or otherwise sell stakes in wholly owned businesses. Yet the recent IPOs of other tech companies in the U.S. and U.K. suggest that the wait could finally be over. That could lead to businesses like grocery retailer Freshippo also going public in the near future.
Could outside investors own more of Chinese companies?
Yet Alibaba's news by itself wouldn't justify the gains in other Chinese stocks, including some of Alibaba's closest rivals. NetEase was up 6% Friday morning, while Tencent Music Entertainment climbed 5% and Bilibili added 7%.
Broader gains among Chinese stocks came as reports suggested that the Chinese government might be willing to consider loosening the restrictions that prevent foreign investors from taking too large a stake in any given Chinese company. Currently, local companies can't have more than 30% of their equity owned by overseas investors. Yet as the Chinese stock market has struggled and the broader economy has slowed, it appears that China is more willing to encourage outside investment if it could mean restarting the nation's economic growth engines.
Already, some pulling back on restrictions has occurred. Last month, the Chinese government increased the number of virtual private network (VPN) services providers it allowed within its country. It also allowed foreign ownership of up to 50% in those VPN providers, signaling a shift that it could apply more broadly across China's stock market.
Yet U.S. investors might still want to be cautious. Some lawmakers in Washington still want to limit the ability of Chinese companies to list on U.S. exchanges, citing inadequate disclosures and some problems with fraudulent behavior in the past. Moreover, as national security becomes an increasing concern due to the accelerating growth in technological innovation in areas like artificial intelligence, the stakes will grow for the U.S. and China in their ongoing competitive battle.
Alibaba stock remains well below its peak levels from a few years ago. It could take a lot more than spinoffs to restore the Chinese stock to its former glory, but at least for today, shareholders are celebrating.
