Alibaba, other China ADRs surge as Ant Group capital plan approval fuels hope for relaxing scrutiny

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Alibaba, other China ADRs surge as Ant Group capital plan approval fuels hope for relaxing scrutiny

Alibaba faces growth challenges amid tightening regulation of China’s tech sector and a slowdown in the world’s second-largest economy. However, analysts believe the e-commerce giant’s growth could pick up by the end of 2022.

Kuang Da | Jiemian News | vcg | Getty Images

Chinese tech stocks traded in the U.S. rose Wednesday morning after Chinese officials approved an expanded capital plan by Ant Group.

American Depositary Receipt Shares by Ali Baba jumped 13.1% after the news as the stock increased JD.com increased by 14.7%. Elsewhere shares of baidu rose 10.6% while NetEase and Trip.com increased by 8.0% and 6.8% respectively.

The moves come as investors see signs of a more relaxed regulatory environment in China. Ant Group, which previously had its own IPO plans stymied by regulatory concerns, was allowed to double its registered capital under the new plan.

A softer regulatory note on tech stocks, as well as the reversal of the zero-Covid policy, is seen by some investors as a sign that the Chinese government will support private sector growth this year.

“China has struck a particularly accommodative tone in recent months, backing away from its stringent COVID controls and rolling back its regulations on previously severely depressed sectors (ie real estate). The recent Central Economic Work Conference (CEWC) has set the government’s priorities for 2023 to revive consumption and support the private sector,” Benchmark’s Fawne Jiang wrote in a note to clients on Wednesday.

ADRs are similar to common stock but represent a more indirect form of ownership. They also allow Chinese stocks to be traded in the US without the companies having to follow US accounting rules, which has raised concerns that they may eventually be delisted could become.

However, last month the Public Company Accounting Oversight Board – a US accounting regulator – announced that it had been given access to investigate accounting firms in China and Hong Kong. This move is seen as a positive step in reducing the risk of delisting.

– CNBC’s Michael Bloom contributed to this report.

Correction: Chinese tech stocks traded in the US were higher on Wednesday morning. A previous version incorrectly specified the day.