This IPO is a measure of China's growing strength
London(CNN Business) When Ant Group prices its IPO in Shanghai and Hong Kong this week, it could set a new world record for a stock market listing. But it will also ram home a much bigger point.
What's happening: In finance and tech, China's clout is growing just as its economy recovers from the pandemic in better shape than other big players.
Ant is the crown jewel of Jack Ma's tech empire, best known for its Alipay app that has more than 730 million monthly active users. On Tuesday, it's expected to announce that it will surpass the $29.4 billion Saudi Aramco's float raised last December by selling shares both in Hong Kong and on Shanghai's Star Market, China's answer to the Nasdaq.
For Beijing, which wants to encourage more seasoned investors to park their money in Chinese stocks and more Chinese tech companies to list their shares at home, it's poised to be a huge win.
"The Chinese government is more than happy to host a national champion on one of its major capital markets domestically at a time when many Chinese companies are facing greater political headwinds overseas," Xiaomeng Lu, senior geotechnology analyst at Eurasia Group, told me.
Lu said Beijing has been trying to send a message to China's top tech companies: "This is a difficult time, and we have your back."
A growing number of firms are listening as US-China tensions ramp up. There's little clarity on whether the presidential election in November will reset the relationship.
US threats and restrictions against Chinese tech companies like TikTok and WeChat send a warning. On Wall Street, Chinese firms also face additional scrutiny. Luckin Coffee was kicked off the Nasdaq following the disclosure of major accounting irregularities. US lawmakers, government agencies and stock exchanges have since taken steps aimed at limiting Beijing's access to America's vast capital markets.
"Chinese companies consider repatriation both to please [Beijing] and to insulate themselves from potential US action," Brock Silvers, chief investment officer at Kaiyuan Capital and former chief investment officer at Adamas Asset Management, told me.
In such an environment, a company like Ant has good reason to pursue a listing at home. Over the long term, that should be to China's benefit.
Ant's decision to opt for the Star Market, a pet project of Chinese President Xi Jinping, will give it a huge boost in legitimacy and value, Lu said, noting that the massive IPO will push the market capitalization of the Shanghai Stock Exchange, which includes the Star board, close to that of the Tokyo Stock Exchange. Silvers points out that the listing also gives China "greater control over an important company in a cutting edge sector."
Watch this space: China's markets are still "fairly immature" and "highly volatile," per Lu. But a listing like Ant's will certainly help raise their profile.
Can Big Tech keep up its winning streak?
Apple (AAPL), Facebook (FB), Microsoft (MSFT), Amazon (AMZN) and Google parent Alphabet (GOOGL) now account for 23% of the market value of the S&P 500 — so you can bet that when all five companies report earnings this week, investors will be paying close attention.
In the second quarter, Big Tech served up a solid rebuttal to those who fear shares in these firms are overvalued.
See here: Amazon, which has benefited from surging demand for deliveries, posted quarterly revenue of $88.9 billion, a 40% increase from the prior year and a staggering $8 billion more than Wall Street expected.
Companies like Amazon and Microsoft likely maintained their momentum between July and September as work from home boosted demand for products like cloud services. The consensus on the Street is that Amazon's revenue will rise 32% compared to the same period in 2019.
But as pressure to regulate tech companies grows in Washington, strong results cut both ways.
Last week, the Trump administration sued Google in the largest antitrust case against a tech company in more than two decades. The Justice Department made sweeping allegations that Google has stifled competition to maintain its powerful position in the marketplace for online search and advertising.
For now, Wall Street views the risk that Washington could break up Big Tech companies as fairly limited. Growing financial clout, however, could put a larger target on these companies' backs.
Up next
Monday: New US home sales; Germany business climate; Hasbro earnings
Tuesday: Ant Group prices IPO; US consumer confidence; Microsoft, 3M (MMM), BP (BP), Caterpillar (CAT), Eli Lilly (LLY), Merck (MKGAF), Pfizer (PFE) and Xerox (XRX) earnings
Wednesday: Bank of Canada meeting; Boeing (BA), Dine Brands (DIN), GE (GE), Mastercard (MA), UPS (UPS), Beyond Meat (BYND), Etsy (ETSY), Ford (F), Gilead Sciences (GILD), Pinterest (PINS) and Visa (V) earnings
Thursday: US third quarter GDP; Japan consumer confidence; Initial US jobless claims; European Central Bank meeting; Alibaba (BABA), Alphabet, Amazon, Apple, Facebook, Anheuser-Busch InBev (BUD), Comcast (CCZ), Dunkin (DNKN), Kellogg (K), Kraft Heinz (KHC), Moderna (MRNA), Molson Coors (TAP), Spotify (SPOT), Yum! Brands (YUM), Activision Blizzard (ATVI), Starbucks (SBUX) and Twitter (TWTR) earnings
Friday: European Union third quarter GDP; US personal income and spending; Chevron (CVX), ExxonMobil (XOM) and Honeywell (HON) earnings
