Wall Street positive on China's e-commerce amid Alibaba enthusiasm

As China's e-commerce giant Alibaba Group poised to claim the crown as the biggest initial public offering (IPO) in U.S. history, concerns arise about what implications it may have on other China-based e-commerce companies in the U.S. market.

Although some argued that investors could sell high-flying tech shares, especially other Chinese e-commerce stocks, to make room for Alibaba, many analysts expressed optimism about their growth potential in the long run.

GAIN OR PAIN?

With the massive deal approaching, Alibaba-related companies have been either reaping gains or feeling pain.

On the one hand, Alibaba's IPO has put some of its rival Chinese e-commerce stocks under selling pressure.

JD.com, Dangdang, Jumei International Holding and Vipshop Holdings, four of the relatively large China-based e-commerce firms listed in the United States, experienced remarkable declines in August, ranging roughly from 15 percent to 30 percent.

Amazon.com, Alibaba's major U.S. competitor with a similar market valuation of some 160 billion dollars, has dropped over 6 percent since Alibaba first announced its estimated IPO price range on Sept. 5. Meanwhile, eBay declined about 8 percent from its late August peak.

Alibaba's IPO could raise an initial 21.8 billion dollars at the top of its newly proposed price range of 66 dollars to 68 dollars per American depositary share (ADS).

According to some traders, such a big deal could force investors to reposition their portfolio by selling high-flying tech shares to make room for Alibaba.

It's "definitely a possibility" that Alibaba's IPO would siphon off volume from other e-commerce stocks, said Mark Otto, Partner/Designated Market Maker at J. Streicher & Co., in an interview with Xinhua.

"Most people will believe that it's all dependent on the valuation that the stock comes out at."

Ilya Grozovsky, senior equity analyst at SPQR Capital, said: "Obviously, with a fixed amount of money potentially investing in China as supply grows with the same demand, there could be reallocations of assets from Chinese stocks to Alibaba."

On the other hand, Alibaba's two largest shareholders Yahoo and SoftBank have seen their shares rally on Alibaba's IPO craze. Yahoo shares closed at an eight-year high of 42.88 dollars per share last Friday, while SoftBank shares gained more than 12 percent last week.

China's microblogging website Weibo, in which Alibaba owns certain stakes, hit a new closing high since it went public on Nasdaq in April.

"Everyone is saying if you haven't been able to tap into the shares for the IPO of Alibaba, another way in going buy it is perhaps to purchase Yahoo," said Otto.

LIMITED EFFECT ON CHINA E-COMMERCE STOCKS

Although Alibaba's IPO could suck money out of other U.S.-listed Chinese companies, analysts believe its potential impacts would be temporary and limited and are not likely to cause significant selloff of those companies.

Otto said: "I think actually in some cases Chinese e-commerce stocks have been benefited from the Alibaba IPO coming. It shined a spotlight on Chinese e-commerce, the growth story of China, how many people are actually utilizing the Chinese Internet -- 632 million people out of a population of 1.3 billion. So it's a growth story that everyone likes to follow with this e-commerce sector."

Alibaba's IPO will produce an advertising effect, said Lijie Zhu, managing director at Dragon Gate Investment Partners LLC, a New York-based investor relations firm.

"As a result, I think global investors could have a better understanding of U.S.-listed Chinese shares and increase their willingness to invest in China," she said.

Nicholas Colas, chief market strategist at ConvergEx Group, said: "Investors who have made investment in this sector really like the sector. They really like the growth prospect. I don't think they are going to sell similar companies, because they already like (their) fundamentals very much."

Investors might sell slower-growth sectors or even sell U.S. stocks in similar businesses, said Colas.

"But as far as other Chinese companies, this is really a very unique set of stories. And investors who like the stories, they are not going to sell to buy Alibaba, they are going to find something else to sell," he added.

Commenting on the recent performance of Chinese e-commerce stocks, Otto said they are trading mixed. "Some are really outperforming others. Year to date, some are actually up significantly."

OPTIMISTIC ON GROWTH POTENTIAL

Global investors have shown optimism toward China's lucrative e-commerce sector due to the country's fast growing consumer demand and the untapped potential of the Internet, which was evidenced by the immense appetite toward Alibaba shares during its roadshow.

Alibaba reportedly sold out all the shares it plans to offer within the first couple of days of its roadshow, and raised its estimated IPO price range on Monday.

"I can tell you that a lot of the investors are very drawn to the growth of the sector and the long-term promise," said Colas.

"It really is the intersection of two very important trends: the first is the power of the Internet and the second is the growth of Chinese economy. Companies that can exploit that intersection have much higher growth prospect than the average," Colas commented.

Zhu said China's e-commerce companies enjoy huge growth potential. Currently, the number of Chinese consumers using the Internet to make their purchases is increasing at an explosive rate.

"We believe that this will be a new demographic dividend for China's economic development," she said.

Moreover, as the Chinese market becomes more and more internationalized, it will attract more capital to focus on this trend, she added.