China’s stock rerating spurs widening premiums in ADRs for Alibaba, Li Auto

The price gaps come as Chinese tech stocks have regained favour among investors after the rapid ascent of AI start-up DeepSeek

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Published: 8:30am, 13 Mar 2025Updated: 9:00am, 13 Mar 2025

The world-beating rally in Chinese stocks has widened the price discrepancy between shares of the nation’s biggest tech companies trading in Hong Kong and the US, creating an arbitrage opportunity for the two types of fungible securities.

Hong Kong-listed shares of Alibaba Group Holding now command a monthly average premium of 1.1 per cent to its American depositary receipts (ADRs), compared with an historical average of 0.19 per cent since the e-commerce giant began trading in the city in November 2019, according to Bloomberg data. On March 6, the gap touched 3.6 per cent, the biggest for the month. One ADR of Alibaba represents eight Hong Kong-traded shares. Alibaba owns the Post.

The premium for rival JD.com averaged 1.4 per cent in March, compared with the historical average of 0.16 per cent, while the discrepancy for electric-vehicle maker Li Auto has expanded to almost 1 per cent from 0.4 per cent, the data shows. The respective figures for video gaming company NetEase’s are 1.1 per cent and 0.1 per cent.

Robots weld bodyshells of cars at a workshop of Chinese electric vehicle maker Li Auto in Changzhou in China’s Jiangsu Province. Photo: Xinhua

The wider price gaps align with an ongoing rerating of Chinese tech stocks, which have regained favour among investors after the rapid ascent of AI start-up DeepSeek fuelled optimism about China’s competitiveness in the cutting-edge technology. The Hang Seng Tech Index has risen more than 30 per cent this year. Global investment banks including Goldman Sachs and China International Capital have said that the run-up has further to go.

“As long as the momentum remains, the trend of wider premiums will carry on for a while,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “That has a lot to do with sentiment and liquidity.”

Ordinarily, the gap between the two types of securities should be negligible due to the conversion mechanism. However, the recent widening is largely a result of diverging sentiment and fund flows in the two markets.

In the US, investors are unsettled by the Trump administration’s tariff policies, stretched valuations of the co-called Magnificent Seven tech stocks, and waning expectations about interest rate cuts by the Federal Reserve. On top of the DeepSeek AI breakthrough, China boosted its deficit ratio to 4 per cent, a level not seen for years, to bolster demand and pledged more monetary loosening at its annual parliamentary meetings that concluded on Tuesday.