A week ahead of its $24 billion initial public offering, Alibaba’s prospects for inclusion in exchange traded funds brightened significantly after S&P Dow Jones Indices said it is assigned a China domicile to Jack Ma’s company.
That is a departure from the previous treatment given to Alibaba by other index providers, such as MSCI (NYSE: MSCI). Due to Alibaba’s incorporation in the Cayman Islands, some index providers are not including the e-commerce company in their indices. [Alibaba Won’t be in MSCI ETFs]
“MSCI has analyzed the country classification of Alibaba Group Holding. Based on current information, the company will be incorporated in Cayman Islands, it will file 20-F only and it will list in the US only, through American Depositary Shares (ADS). Consequently, based on the above and as per the Appendix III of the MSCI GIMI Methodology Book, the company is not eligible for inclusion in the MSCI Global Investable Market Indexes (GIMI),” according to the index provider.
Combine that with Alibaba’s decision to list on the New York Stock Exchange, not the Nasdaq, which eliminates the stock from consideration for the PowerShares QQQ (NasdaqGM: QQQ), and Alibaba’s ETF options have been dwindling not rising in the run-up to the IPO. [Alibaba’s ETF Options Limited]
That makes the S&P news significant because several well-known dedicated China and emerging markets ETFs could eventually hold shares of Alibaba.
“S&P Dow Jones Indices has reviewed the country of domicile for Alibaba Group Holding. In accordance with our domicile assignment procedure found in our Corporate Actions Policies & Practices document, Alibaba Group will be assigned a China domicile. The stock will be screened for inclusion in all headline indices according to each index’s rules and IPO inclusion policy,” said the index provider in a statement.
S&P Dow Jones Indices went on to note “According to our published index rules, Alibaba Group Holding would be eligible for all standard S&P Dow Jones Global Benchmarks that include Chinese stocks. In particular, it will be screened for inclusion in the S&P China BMI, and therefore the S&P Emerging BMI and S&P Global BMI, according to the index’s standard IPO addition policy.”
Among the noteworthy ETFs tracking S&P Dow Jones Indices that could Alibaba is the SPDR S&P China ETF (NYSEArca: GXC). GXC, home to nearly $1 billion in assets under management, tracks the S&P China BMI Index and features Tencent Holdings (OTC: TCEHY) and Baidu (NasdaqGS: BIDU) among its top-four holdings. Those are two of the U.S.-listed Chinese Internet companies mentioned alongside Alibaba. [How to Use China ETFs]
Due to the fact S&P is not confining its inclusion of Alibaba to China indices, the stock could eventually make its way to multi-country emerging markets and regional ETFs that hold Chinese equities.