Savvy New York Alibaba traders bagging profits through a temporary arbitrage opportunity
- Alibaba’s Hong Kong-traded shares have cost as much as US$7.68 more than its US stock certificates
- More confidence in the e-commerce giant by investors closer to home explains the gap
It’s an opportunity that will not last, but savvy traders holding US-listed Alibaba stock certificates have been bagging profits by capitalising on shares costing more in Hong Kong.
The manoeuvre is known as arbitraging, in which a trader makes a profit on securities selling on separate exchanges at different prices.
Over the nine days that China’s e-commerce giant has been trading in a secondary listing in Hong Kong, excitement pushed the share price up – beyond what it was in the US. At one point, Alibaba’s shares were as much as US$7.68 more expensive per share in Hong Kong than in New York, where it originally listed five years ago.
Traders were able to exchange their US-listed securities through what are known as American depository receipts (ADRs) for the higher priced Hong Kong shares. Then they were able to sell them and pocket the difference.
Traders in Hong Kong drove the price up in part because they expect Alibaba will become even more valuable once it is eventually added to the trading link between the city and mainland China.