Alibaba Gains Amid China ADR Buying After A-Share Rout

Alibaba Group Holding Ltd., China’s biggest e-commerce company, halted a three-day slide and Inc., its smaller rival, surged the most in six months as investors snapped up U.S.-listed Chinese stocks after indexes in Shanghai and Hong Kong tumbled.

American depositary receipts of, which had lost one-third of their value since an August high, surged 9.4 percent in New York. Alibaba, more valuable than Facebook Inc. or General Electric Co. after its September U.S. listing, rebounded 2.3 percent from a five-week low. The largest U.S. exchange-traded fund that tracks mainland Chinese stocks plunged 7.3 percent, the most on record.

Investors turned to ADRs of Chinese companies after a rally in mainland shares collapsed yesterday following the announcement of new restrictions in the use of local-government debt. The Shanghai Composite Index had climbed 21 percent and the U.S.-traded Deutsche X-trackers Harvest CSI 300 China A-Shares ETF had soared to a record after China opened up its market to foreigners with the Shanghai bourse link and the central bank unexpectedly cut interest rates for the first time since 2012 last month.

“We could be seeing the ‘out of ADRs into A-shares’ trade reverse just a little bit,” Yousef Abbasi, the global market strategist at JonesTrading Institutional Services LLC in New York, said in an interview yesterday. “We had seen investors selling China ADRs and buying the common shares for a few weeks now. With the move in China overnight, it looked like early weakness in JD as well as BABA was bought.”

Foreigners Buying

Investors had bought mainland stocks after China opened up its Shanghai market to more foreigners last month by linking up with the Hong Kong exchange., which had tumbled 29 percent since Aug. 27, jumped to a three-week high of $25.42. Hangzhou, China-based Alibaba climbed $107.48, extending to 58 percent its gain since a $25 billion initial public offering. Qihoo 360 Technology Co. Ltd., which supplies Internet security services, added 4.4 percent and Ltd, an online sports lottery service provider, rose 4.8 percent.

The Shanghai Composite Index sank 5.4 percent yesterday. The gauge had surged 21 percent since Nov. 21, when the People’s Bank of China unexpectedly cut borrowing costs and ignited bets for an across-the-board reduction of lenders’ reserve ratio requirements. The Deutsche X-Trackers ETF fell to $32.57, the biggest drop since its November 2013 debut.

Bonds rated below AAA or sold by issuers graded lower than AA are no longer allowed for use as collateral in short-term loans obtained through repurchase agreements, China’s clearing agency said Dec. 8.