The coming Ant Group IPO is the most anticipated of the year, but as with all things between China and the U.S., there are many investor questions lingering about how to buy the Ant Group IPO.
The company, formed by Jack Ma to handle transactions at Alibaba Group Holding (NYSE:BABA), is less a bank or a payments company than a software as a service outfit.
That means it’s more like Fidelity National Information Services (NYSE:FIS) than JPMorgan Chase (NYSE:JPM). The market value of Ant Group stock after the IPO is likely to be just over half as big as Visa (NYSE:V), which is worth $416 billion.
The problem is that because of the Trump Administration’s Cold War with China, Ant isn’t listing in the U.S. The Administration is trying to use executive orders to force American investors out of all Chinese stocks.
But that doesn’t mean you can’t still get in. Read the IPO document first, then call your broker.
Alibaba is a Proxy for Ant Group IPO
The easiest way to get into Ant is to buy Alibaba stock.
Alibaba owns about one-third of Ant. If Ant’s valuation after the IPO is $225 billion, as expected, Alibaba’s stake is worth $67 billion.
Alibaba recently passed Facebook (NASDAQ:FB) to become the fifth most-valuable company in the world, with a market capitalization of $729 billion. Some of that recent rise, 27% so far in 2020, is fueled by its stake in Ant. I have been urging investors buy Alibaba for years and have some shares in my retirement account.
Buy Renaissance International
Another way to buy into Ant is through the Renaissance Financial IPO ETF (NYSEARCA:IPOS).
This is an exchange-traded fund run by Renaissance Capital, which specializes in IPOs. As more than half of IPOS portfolio is in Chinese stocks, Ant stock will undoubtedly find its way there. So far in 2020, IPOS is up about 30%.
Buy a Chinese Fund
Renaissance isn’t the only fund that’s going to get into Ant Financial.
Other China-oriented funds like the SPDR S&P China ETF (NYSEARCA:GXC) and the iShares MSCI China ETF (NASDAQ:MCHI) are certain to get shares as well. The SPDR funds are run by S&P Global (NASDAQ:SPGI), iShares by Blackrock (NYSE:BLK).
So far in 2020, GXC is up about 15% while MCHI is up about 8%.
Call Your Broker
Interactive Brokers (NASDAQ:IBKR), Fidelity Investments and Charles Schwab (NASDAQ:SCHW) all offer some Chinese trading services. Interactive Brokers trades on both the Shanghai and Hong Kong exchanges, Schwab just in Hong Kong.
Unless you’re an extra-large client at one of these brokers, it’s unlikely you can get IPO shares, but you can still trade after the offering. I have been with Schwab for years. I call Charlie my bookie.
Wait for the ADR
Banks and brokers create and market American Depository Receipts (ADRs) on many foreign stocks, including some without U.S. listings.
After Ant goes public, it’s likely a sponsor will turn up to handle ADR trading. Technically I don’t own any Alibaba. I own some ADRs. These range in quality, from companies that offer few financial details to those that offer regular reports. Ant will fall in the latter group.
Buy the Big Banks
A final way to get a taste of Ant is through the big U.S. banks that are sponsoring the Hong Kong listing. These include JPMorgan Chase, Morgan Stanley (NYSE:MS) and Citigroup (NYSE:C). Goldman Sachs (NYSE:GS) has also joined the syndicate recently.
The IPO will be a major payday for these banks. This year, the brokerage side of these banks are providing the profits, because rates of return on lending are so low.
The Bottom Line
In addition to financial risks, buying Ant also carries geopolitical risks. If Trump is re-elected in November, the Administration may shut the door entirely on China. (They can have my Alibaba when they pry it from my cold, dead hands.) Even if Joe Biden is elected, the China relationship is going to be fraught.
If you’re willing to take those risks, as well as the financial ones, go for it.
At the time of publication, Dana Blankenhorn held a long position in BABA.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.