For years, many large Chinese companies have chosen to list in the U.S. instead of Hong Kong or China. Now, amid a trade dispute between Beijing and Washington, one national champion may lead the way back home.
Nearly five years after Alibaba shattered records with a $25 billion IPO, the company is said to be planning a secondary listing in Hong Kong. Analysts told CNBC that other U.S.-listed Chinese firms may consider doing the same.
"I think there will be more … companies looking to move back to Hong Kong because we really don't know what the U.S. will be doing," said Kevin Leung, executive director of investment strategy at Haitong International Securities.
The U.S. and China have been engaged in a trade war that has seen retaliatory moves from both countries. Technology is one of the thorny issues at the center of the dispute. Washington has placed Huawei on a blacklist, while Beijing introduced an "unreliable entities list" — which identifies foreign companies deemed as a risk to Chinese firms.
"From what we see from Huawei and ZTE before, (the) U.S. definitely seems to have issues with China and tech advancement," he said. ZTE, a major rival to Huawei, was forced to temporarily suspend major operations last year after Washington banned the Chinese telco giant 2018 from buying goods from the U.S. in April.
"I do see more dual listings coming back, especially when you look at the Chinese companies, basically they do have a large chunk of their operations in China," he added.
Firms that have large market caps, stable earnings and are "household names" or market leaders in China may consider doing so, he said in an email to CNBC.
Leung cited companies such as JD.com, CTrip and Baidu — which are all listed on the Nasdaq in New York.
Increased scrutiny
Such firms need to have at least "one foot planted in one of the Chinese exchanges" if they want to get the best valuation possible, said Gil Luria, director of research at financial services company D.A. Davidson.
"The level of uncertainty around the ability to raise capital in the West is growing," he said, pointing out that the scrutiny of Chinese listings stateside is increasing.
I would think long and hard if I was a Chinese company already listed in the U.S. or thinking of listing in the U.S.Gil Luriadirector of research, D.A. Davidson
A group of lawmakers last month introduced a bill that would force U.S.-listed Chinese firms to comply with regulatory oversight.
Luria said more restrictions could be placed on Chinese firms as the world's two largest economies remain locked in a trade conflict.
"Every time there's fraud associated with a Chinese listing, it's the Securities Exchange Commission that gets the heat, so increased scrutiny from them is a likelihood, but it's also quite possible that we will get legislation," he said.
"I would think long and hard if I was a Chinese company already listed in the U.S. or thinking of listing in the U.S.," Luria added.
Pull factors
Changes in the Greater China markets are making it attractive for companies to list closer to home too.
"Chinese investors are becoming more relevant in terms of capital and understanding of the markets," Haitong International's Leung said.
Listing in Hong Kong or China gives these investors "easier access" because they won't have to deal with time differences and transferring capital to the U.S., he said, citing the example that some investors have told him they want to buy shares like Alibaba "but cannot do so just because they don't know how to."
Companies used to be concerned about the quality of domestic investors compared to international ones, but that gap has narrowed, he added.
More accommodative policies also mean that listing in the region is now a possibility.
Last year, Hong Kong's stock exchange operator loosened its rules, opening its doors to secondary listings and pre-revenue companies that wished to list on the bourse. Firms can also issue dual-class shares.
Shanghai's new Nasdaq-style tech board — the Science and Technology Innovation Board, or Star Market — launched this week and allows pre-profit firms to go public.
Previously, Chinese companies that weren't profitable "automatically" sought an IPO on the Nasdaq where they could satisfy the listing requirements, said Mary Manning, portfolio manager for Ellerston Capital.
Charles Li, CEO of the Hong Kong Stock Exchange, told CNBC earlier this month that "for anybody who travels far far away, there's going to be a time to come home." He said he was "quite confident" that Chinese firms listed abroad would choose to issue new offerings in Hong Kong.
US vs Asia listings
But not all analysts agreed.
Dickie Wong, executive director of research at Kingston Securities brushed off concerns about increased scrutiny in the U.S. He said America is "open minded" about listings, and firms that comply with regulations and doing legal things should have "no problem at all."
While regulations in Hong Kong and China have improved, market conditions may not be supportive of secondary listings by any company, Wong added.
He cited as an example the scrapped public listing for Budweiser Brewing Company APAC — which is Anheuser-Busch InBev's Asia-Pacific business unit.
It was initially set to raise up to $9.8 billion and would have been 2019's largest IPO. The company had planned to list on the Hong Kong Stock Exchange on July 19, but finally chose not to proceed, citing "several factors, including the prevailing market conditions."
"That's definitely a very bad thing for ... the IPO market, for Hong Kong Stock Exchange," said Wong. "It's a negative sign of the outlook of the Hong Kong stock market itself."
Meanwhile, he said the U.S. market is "very active" in terms of trading volumes, and has higher liquidity than Asian markets.
Wong said Chinese firms may enjoy a much higher valuation in the U.S. However, that could also make it harder if they want a secondary listing in Hong Kong and China, as they will have to issue their shares at a higher price, making it less attractive for potential investors.
The timing is good for Alibaba because investors know the company well, said Wong.
"They can have (an) even higher market cap after they list in Hong Kong, but I don't think the market can support too many, like this, mega secondary IPO offering," he said. "I don't really think so."
— CNBC's Grace Shao, Evelyn Cheng and Reuters contributed to this report