Retail investors are frantically copying Ali, but SoftBank is going to withdraw?

SoftBank's exit would run counter to the recent trend of investors buying Alibaba shares on dips.

According to regulatory filings, analysts believe that technology stock investor SoftBank may be preparing to sell some or all of its huge stake in troubled Chinese tech giant Alibaba (BABA).

On February 4, Alibaba applied to the U.S. Securities and Exchange Commission for an additional 1 billion ADS (U.S. Depositary Shares). The move paves the way for investors to sell shares of companies that have not previously been traded in the U.S. market, such as those held before listing in Hong Kong or Alibaba.

American Depositary Shares – Allows U.S. investors to hold and trade shares in foreign companies, issued by the American Depositary Bank, which has bundled shares of these foreign public companies into so-called American Depositary Receipts (ADRs).

Alibaba's registered shares with depository banks are worth more than $120 billion and may soon be listed and traded in the United States. Analysts at Citi believe that such a large-scale stock registration could mean that a major investor is about to exit. Citi is also Alibaba's depositary bank in the United States.

A team at Citigroup, led by Alice Yap, said SoftBank could be the main investor in the upcoming launch. The Japanese investment group, run by Son, owns nearly 25 percent of Alibaba and invested in the company before it went public. Analysts say it is likely that its shares are not registered in the form of American depositary shares.

Japp and her team said: "While we believe that this newly registered shares may mean that SoftBank will issue new shares in the future under the employee equity incentive plan, we believe that it may also mean that SoftBank has the intention to sell Alibaba shares." ”

SoftBank holds 5.39 billion ordinary shares of Alibaba, equivalent to 670 million ADS shares, or 24.8% of the shares. That's equivalent to the vast majority of Alibaba's recently registered ADS.

On February 7, Alibaba shares fell 4 percent in U.S. pre-market trading, and Hong Kong-listed stocks (9,988.hk) closed down 4.5 percent. In Tokyo, Shares of SoftBank Group rose 2.6 percent.

Because SoftBank's stakes are concentrated in tech companies, it may feel the pressure of the adjustments that are common in the tech industry. SoftBank shares are down more than 43 percent from the same period last year.

In August 2021, Son said he would suspend investment in China: "We want to wait and see until the situation becomes clearer." A year or two later, I believe the new rules will create a new situation. SoftBank also said it will observe how China's consolidation of the domestic technology industry will develop.

Most of SoftBank's current investments are overseas, especially in the U.S. and China. However, this is changing. SoftBank's overseas investment is "downsizing" and beginning to shift to Japan, reflecting the risks in the overseas technology investment market. SoftBank has dumped tens of billions of dollars in listed tech stocks over the past year, including $6 billion in assets held in companies like Meta (formerly Facebook), Microsoft, Netflix and Google, and reduced its holdings of $4 billion in assets held by Uber and DoorDash.

SoftBank's exit comes at a time when Alibaba's stock price is at its lowest level since 2017. Alibaba's sharp drop in market capitalization (down nearly 50 percent in 2021 alone) is largely due to regulatory pressures in China and a slowdown in the e-commerce giant's growth.

SoftBank's exit would run counter to the recent trend of investors buying Alibaba shares on dips. By the end of 2021, Charlie Munger's Daily Daily (DJCO) doubled its investment in Alibaba for the second consecutive quarter. Munger is warren Vice Chairman of Buffett's Berkshire Hathaway.

At the same time, Japan's SoftBank Group has been in turmoil recently. SoftBank CHIEF Operating Officer Marcelo Claure recently announced his departure. As one of SoftBank's most important decision makers, Crowe's departure has also left Son's investment empire with great uncertainty about the future.

Neither SoftBank nor Alibaba immediately responded to Barron's request for comment.

Text | Barron's writer Jack Jack Denton

Edit | Wu Yuting

Translate | Small color