The Independent Market Observer

5/7/14 – Alibaba Votes with Its Wallet—for the U.S.

Posted by Brad McMillan, CFA®, CFP®

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This entry was posted on May 7, 2014 1:30:00 PM

and tagged Market Updates

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We’ve seen a lot of the usual hand-wringing about U.S. markets over the past several months—Flash Boys and high-frequency trading, breakdowns in the Nasdaq, various insider trading scandals. It hasn’t been a great time to be in the financial market press-relations departments.

And yet, looking at the papers today, when things really matter—when money is on the line—investors and companies continue to vote with their wallets and elect the U.S. markets as the best in the world.

Alibaba, the Chinese e-commerce giant, could list anywhere it wanted. In the New York Times, Sameet Sinha, an Internet analyst, describes the company as an Amazon, an eBay, and a PayPal, all rolled into one. The company’s value is expected to approach $200 billion after it goes public. This is a big deal, in every sense of the term.

The fact that Alibaba filed for its IPO in New York, rather than somewhere else, has to be seen as a vote of confidence in the U.S. financial system. When you can go anywhere, where you actually do go matters—and Alibaba chose to come here.

Why is that? There are a number of possible reasons, but I think these are the primary ones:

  • Rule of law. The U.S. has one of the best, most predictable legal systems in the world. For companies seeking an environment where nonbusiness risks can be minimized, this is a significant advantage.
  • Unparalleled liquidity. For an offering of this size, you need access to investors around the world, to enormous amounts of capital and financing, to large investors, and to the financial institutions and investment banks that can execute at this level. Other cities have the capacity, but none on a par with New York.
  • Relative certainty about the currency. For all the drama surrounding the U.S. dollar, it remains the most liquid world currency, and subject to the least political and economic uncertainty. Listing in the U.S. allows Alibaba to raise capital without the risks associated with other currencies.

Many details about the offering remain to be disclosed, and I’m certainly not making any recommendation either way on the company or the stock. But it almost doesn’t matter.

What’s important here is that a major Chinese company is making a multibillion-dollar long-term bet on the U.S. financial system, at the same time that many U.S.-based commentators are calling for its demise. Looking at the size of the bet, the stakes for the company, and where it’s coming from, I have to say that I find this news very encouraging from a U.S. perspective.

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