Traders Scent Profit Opportunity Working Alibarbitrage
- Stock liable to attract more funds in Hong Kong than in U.S.
- Conversions into Hong Kong shares could lift index weighting
Photographer: Andrew Harrer/Bloomberg
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There’s a relatively low-risk way to gain from Alibaba Group Holding Ltd.’s stock should a rush of passive funds push up its valuation in Hong Kong.
Arbitraging the shares -- or purchasing Alibaba in one market to sell it in another for a higher price -- allows traders to exploit even the smallest difference between U.S. and Hong Kong listings. While the city’s pegged currency means the strategy will never be hugely profitable, shares traded there are expected to become more attractive to investors than the American depositary receipts.