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Why Jack Ma wants a Star listing
Hello! This week: The geopolitics of the Star market and Ant's dual-listing, Tesla's mining adventures, and Intel's continued fall from grace. Want Index in your inbox each week? Subscribe here.
- "We will not consider listing in the U.S. anymore after the sanctions." — Bill Huang, CEO of robotics startup CloudMind, said his company was hit hard by export controls.
- "The concentration concerns me … I look at these stocks and wonder how high they can go." — State Street's Lee Ferridge is worried about the FAAMG stocks' dominance over the broader market.
- "How did Intel go from manufacturing legend to this?" — Hoxton Ventures' Hussein Kanji expressed disbelief at Intel's 7-nanometer processor delay, which sent its stock down more than 14% Friday morning.
The Big Story
Written in the Stars
Less than a year after it launched, China's Star market has found itself playing a big role in what could be the biggest-ever IPO, by Ant Group. Jack Ma's fintech company announced this week that it would dual-list on Star and the Hong Kong stock exchange, hoping to value itself at $200 billion in the process.
- It's not the only big listing Star has attracted recently: Semiconductor giant SMIC listed last week, with a huge 246% pop that's become characteristic of Star listings. (QuantumCTek's 1000% pop is the one to beat.)
- Star was launched in an effort to attract high-growth tech companies, with the aim of becoming the NASDAQ of China. Unlike other Chinese exchanges, it's much easier to list on Star — offering companies access to a huge pool of domestic capital.
But does a juggernaut like Ant need the simplicity of Star, or is there something else going on? For one, Morningstar's Michael Wu told me that Western investors might struggle to understand Ant's products, so the company could benefit from selling to "domestic users of the application who actually understand what Ant Financial is."
And as always with China, politics is involved. "There is significant political pressure for all of China's 'homegrown champions' to relist on local exchanges," Brock Silvers, chief investment officer of Adamas Asset Management, said via email. Silvers also noted that U.S. threats to delist Chinese companies have encouraged them to return to Asia. "Ironically, Donald Trump may have saved the Star Market," he said.
In the case of Ant, one of China's crown jewels, the pressure to list on a new exchange like Star may have been particularly significant. Fraser Howie, co-author of "Red Capitalism," told me that Ant is listing on Star "partly to curry favor with Xi Jinping."
- It's worth noting that others I spoke to disagreed, saying Ant is a private enterprise that makes its own decisions.
As for why Ant's pursuing a dual-listing rather than just listing on Star? China Renaissance Securities' Bruce Pang said that Ant is so large as to cause a "potential liquidity drain" on Star, forcing it to spread its listing across two markets. Tricor's Pamela Chung, a self-described "IPO Queen," told me that Hong Kong is also still a more international market, pointing to "compliance issues" that foreign investors might face buying on Star.
- Howie doesn't rule out more nefarious reasons. "Listing [overseas] allows a lot of flexibility to bribe people and put money safely offshore where it can't necessarily be traced as easily," he said.
Ant is yet to announce the timing for its IPO, but it is sure to be a landmark moment for Star. By the time it comes around, that could be sorely needed: The exchange's index of its top 50 companies, which launched this week, was down a massive 7% Friday.
Join us next week
Join us: Protocol's transformation editor Mike Murphy will lead a discussion on how businesses have long "gone digital" even if they didn't start that way. We are joined by New Balance CEO Joe Preston, WW CEO Mindy Grossman, and Honeywell Chief Digital Technology Officer Sheila Jordan. This event is presented by AlixPartners.
Up To Speed
- Monday: China was said to be considering export controls on Nokia and Ericsson. IBM earnings beat expectations. Policybazaar said it wants to IPO at $3.5 billion+. Thoma Bravo bought Majesco for $594 million. Line investors were reportedly pushing back against a tender offer's price.
- Tuesday: Adevinta bought eBay's classifieds business for $9.2 billion. Snap earnings disappointed investors. Texas Instruments' forecasts beat expectations. Didi was reported to be planning a Hong Kong IPO. Darktrace was reported to be planning an IPO. SoftBank was reported to be selling Treasure Data for $1 billion. Hippo raised $150 million at a $1.5 billion valuation. Innovium raised $170 million at a $1 billion+ valuation.
- Wednesday: Nvidia was reported to be interested in buying Arm. Apple was reported to be uninterested in buying Arm. Microsoft earnings beat expectations. Tesla posted its fourth profitable quarter in a row. Sequoia and General Atlantic were reported to be planning a TikTok purchase. WhatsApp announced financial services offerings in India. Jamf shares jumped on their debut. Bill Ackman's SPAC raised $4 billion. Airbnb said it had been approached by a SPAC.
- Thursday: Twitter user growth beat expectations. Flipkart bought Walmart's Indian stores. Amazon was reported to be planning a Reliance Retail investment. Talkdesk raised $143 million at a $3 billion+ valuation. MissFresh raised $495 million at a reported $3 billion+ valuation. Waterdrop was reported to be planning an IPO at a $4 billion valuation. SpaceX was reported to be raising at a $44 billion valuation. Ribbit was reported to be planning a $600 million SPAC.
Wish I had a nickel
"Please mine more nickel," Elon Musk practically begged mining companies in Tesla's earnings call this week. "Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way," he said, pointing to the importance of the metal in building Tesla's batteries.
It was a stark reminder of the very physical processes that underlie modern tech — and a revealing look at the way tech companies are getting involved in mining.
- First, a quick overview of the fascinating world of battery tech. Electric vehicles can use a few different kinds of lithium-ion batteries: nickel-manganese-cobalt (NMC), nickel-cobalt-aluminum (NCA), and lithium-iron-phosphate (LFP).
Tesla primarily uses NCA batteries, which have higher energy-density and give its cars a longer range. On Wednesday, Musk said that the new Semi would use these batteries, fueling the company's demand for nickel.
But there's a problem.
Nickel prices are very low, Wood Mackenzie's Milan Thakore told me. That's not good news for Tesla: "It's still too low to incentivize new mining projects going forward," Thakore explained. And the prospect of future demand isn't enough to encourage miners to start digging: It takes such a long time to get mines online — as many as 15 years, Thakore said — that investing now is a big risk.
- "If there's a huge resurgence in [nickel-free] LFP technology, what does that mean for demand of nickel … in the long term?" he noted.
The same thing is happening with other battery metals, too, such as cobalt. To address the problem, electric vehicle manufacturers are going directly to the source. Recent reports said Tesla signed a huge cobalt deal with mining company Glencore, while BMW secured supply from Morocco's Managem. With Musk's comments this week, it sounds like Tesla might be about to look for a nickel deal, too.
These "off-take" deals guarantee miners' income, giving them the confidence to invest so that supplies for the automakers are reliable. But they also have repercussions for manufacturers that don't sign these deals. Mining, particularly for cobalt, is fraught with ethical concerns: "Artisanal mining" in the DRC often employs child labor, which is why companies like Tesla source from the relative safety of Glencore. But Thakore said Glencore's cobalt supplies have almost all been bought up — meaning other companies "are at risk of having to use [artisanally mined] cobalt."
- Oh, and this wouldn't be a Tesla story without a grandiose but dubious statement from Musk. He told investors that the company uses "very little cobalt" and that may go "to zero." Yet the Glencore deal suggests that's unlikely to be the case, Thakore said. "If we look at what the supply chain is doing … that tells a different story."
- With Big Tech's Congress hearing delayed, next week is all about earnings. We've got eBay on Tuesday; Facebook, Shopify, PayPal, Qualcomm and Samsung on Wednesday (plus a Fed interest rate decision); all leading up to Alphabet, Apple and Amazon on Thursday.