Alibaba’s Hong Kong Shares Drop 5.24% on $5 Billion Bond Sale Report

Key Takeaway

• Alibaba's Hong Kong shares dropped 5.24% after reports of a potential $5 billion convertible bond sale, with NYSE-listed shares down 2.21% premarket.
• Broader market declines saw the HSI Tech Index fall over 3%, driven by losses in major stocks like Tencent and Li Auto.
• Significant capital outflows from China in April, totaling $36.7 billion, highlight ongoing yuan challenges amid Fed rate uncertainty.

Alibaba Shares Decline

Hong Kong-listed shares of Alibaba fell over 5% on Thursday following a report that the Chinese tech giant is considering selling convertible bonds to raise $5 billion. Shares ended the trading day 5.24% lower, after falling more than 6% earlier following the Bloomberg report. In premarket trading in New York, Alibaba’s NYSE-listed shares were down 2.21% at 04:51 a.m. ET. Bloomberg, citing anonymous sources, said a bond offering could emerge as soon as this week. CNBC could not independently confirm the report, and Alibaba did not immediately respond to a request for comment.

Earlier this week, Chinese e-commerce rival JD.com took a similar step with a $1.75 billion convertible senior note offering due in five years with a 0.25% coupon. Alibaba weathered a stormy 2023 that included an expansive corporate structure overhaul and culminated in an 86% tumble in fourth-quarter net profit. In a bid to draw investors on the side, the company in February announced it was bolstering the size of its share buyback program by $25 billion.

Broader Market Decline

Asian risk assets experienced a notable downturn, with Hong Kong stocks leading the declines. The HSI Tech Index faced its worst day of the month, driven by substantial losses from major players like Tencent and Li Auto. Tencent's suspension of a new game within an hour of its Chinese debut on Tuesday contributed to the negative sentiment. The tech sub-index in Hong Kong slid more than 3%, while the benchmark Hang Seng Index dropped 2%. The property gauge also saw declines, further exacerbated by weak earnings from Li Auto.

Investors are now looking towards Nvidia’s upcoming earnings report on Wednesday to potentially restore confidence in the global tech sector. The HSI Tech Index is currently facing resistance at the 4,200 level, a challenging barrier in the near term. The rapid ascent of Chinese H-shares since mid-April has prompted concerns among traders, reminiscent of the sudden reversal seen in 2018. During that period, the index experienced one of its most impressive advances, rising for 19 consecutive trading sessions from late December 2017 to late January 2018, peaking just below 14,000—a level that has not been surpassed since.

Capital Outflows and Yuan Pressure

China saw significant capital outflows in April, with banks selling a net $36.7 billion of foreign exchange, the highest since December 2016. This highlights ongoing challenges for the yuan amid a sluggish domestic economy and uncertainties surrounding the Federal Reserve's rate decisions. Local firms purchased substantial amounts of foreign exchange, while exporters held back on dollar conversion, and residents increased their foreign currency holdings for overseas travel.

These actions reflect a cautious stance on the yuan, as China's relatively low interest rates compared to the US favor the dollar. The People’s Bank of China (PBOC) has intervened to maintain the yuan within a tight range, but uncertainties regarding the timing and extent of Fed rate cuts complicate this effort. Goldman Sachs Group Inc. economists, including Xinquan Chen, noted, "We expect policymakers to maintain tight control to fend off depreciation expectations" through strong yuan fixing and offshore liquidity management.