The massive Chinese ecommerce website Alibaba broke an important stock market record last Friday with its initial public offering. The Alibaba IPO now stands as the most successful debut on the market in history. In spite of a relatively poor performance in its second day of trading, the company’s success story begs several questions regarding Chinese-American economic relations.
All about Alibaba and Its Stock Market Success Story
On Friday, the Chinese eCommerce website made IPO history with its unprecedented $21.8 billion debut on the US stock market. An announcement from the New York Stock Exchange soon followed the launch. According to the announcement, the underwriters would supplement the share inventory. At that time, 48 million more shares of Alibaba went up for sale for the price of $68 apiece. This put Alibaba ahead of both the historically high 2010 IPO for the Agricultural Bank of China on the Hong Kong Stock Exchange and Visa’s 2008 debut on the U.S. market at $19.7 billion. We should note that in spite of having broken a major record, the company failed to rise up to the expectations on its second day of public trading. At the end of trading on Monday, Alibaba share prices declined by over 4 percent, down to $89.89.
Alibaba is an online giant which built its reputation by providing services to both eBay and Amazon. It allows businesses to sell products and services to other businesses and consumers. Alibaba also provides cloud computing services and runs a shopping search engine. The key difference between this Chinese colossus and its U.S. counterparts is the sheer scope of Alibaba: its consumer-to-consumer portal Taobao (very similar to eBay) sells almost one billion products. Alibaba accounted for some 60 percent of all the parcels delivered to China in March 2013 through trading activity. By some accounts, Jack Ma, the founder of Alibaba and a former English teacher, now lives as the richest man in China. He possesses an estimated fortune of over 15 billion dollars. Yahoo holds the second biggest percentage of Alibaba shares. The company also suffered from Alibaba’s less than stellar performance on Monday and took a 5.6 percent dive on the market.
U.S. and China: Will the Two Economies Continue to Cooperate?
As the Wall Street Journal noted in the wake of this groundbreaking IPO, the Alibaba listing clearly signals that the U.S. market is hungry for new players. This idea makes sense given the continuing moderate pace of growth in the U.S. economy. At the same time, the publication cites Andrew Slimmon, portfolio manager for Morgan Stanley, in stating that the IPO was a “hurdle” which the market now successfully cleared. What that means is that, had Alibaba failed, much like Facebook did back in 2012, the outlook for the fourth quarter of the market would likely have appeared far more dismal. In spite of some shuffling from issuers, the stock market in the United States seems poised for a busy and profitable period ahead. On top of everything, a fresh batch of new companies and shares are on the way.
The IPO in question also marks a new chapter in the economic relations between China and the U.S. in our post recession economy. As The New Yorker put it, we already commonly acknowledge China’s view of the United States as a major market for its products. But the extent of Chinese economic activities on American soil is perhaps not that well known. As of this writing, nearly two hundred Chinese companies list on the NYSE and Nasdaq. Several exchange traded funds enable U.S. investor activity on the Chinese markets. This gives everyone reason to believe that many Chinese companies will follow in the online giant’s footsteps.