How to Invest in Ant Group: A Financial Technology Giant
Ant Group is set to go through an initial public offering (IPO), selling its stock to the public for the first time.
The IPO is expected to raise more money than any company in history through its IPO.
Investing in an IPO can be exciting for many people. New companies often seem like they have a lot of promise and their shares can often be very volatile, generating significant gains (or losses) for investors who get in early.
If you’re interested in investing in Ant Group, or any new company going through an IPO, it’s important to understand how investing in an IPO works, the potential benefits, and the potential risks.
What is Ant Group?
Ant Group is a Chinese fintech company and an affiliate of the Alibaba Group, one of China’s largest companies.
The group owns Alipay, a digital payment service that serves more than one billion users and that has facilitated transfers of more than $17.58 trillion to date.
Who are some of early investors?
Many individuals and institutions have an interest in investing in IPOs and Ant Group’s IPOs are no different.
The company, which will start trading on Chinese stock exchanges in Hong Kong and Shanghai, has been taking purchase requests from individual investors in Hong Kong and receiving significant interest.
Institutional investors interested in the IPO include the sovereign wealth funds of Singapore and Malaysia, the Canadian Pension Plan Investment Board, T. Rowe Price, BlackRock, and Fidelity.
Ant Group IPO Shares Not Available to Typical Investor
Investing in IPOs usually isn’t difficult, but you can’t expect to pay the advertised price.
When a company IPOs, it usually announces an expected price per share. It then sells these shares to major investors who agree to buy large quantities of shares.
For example, some of the investors mentioned above have committed as much as $500 million toward buying shares in Ant Group.
Once the company goes public, its shares sell on the open market and the people who own those shares can sell them for whatever price they wish to.
Often, the market price for a newly public company will be very different from the price it IPOs at within just a few minutes of trading.
The reality is:
Unless you’re a wealthy investor with connections at your brokerage, you probably won’t get allocated any shares at the IPO price, so you’ll have to buy them on the open market after the IPO.
Ant Group will first be listed on the Hong Kong exchange, so if you want to invest in the company’s shares, you’ll need to work with a brokerage that lets you buy shares from that exchange.
Make sure to consider any commissions or fees that you have to pay for investing in foreign companies.
Also consider the additional risks of buying foreign shares, such as currency risk.
Investing in IPOs – Benefits and Risks
Investing in IPOs can be exciting. If you’re lucky, it can also be quite lucrative.
However, IPO investing can be highly risky, so it’s important to understand both the benefits and risks of investing in the Ant Group’s IPO, as well as IPOs in general.
If you choose the right IPO, you stand to earn a significant amount of money. You’re getting in on the ground floor of a new company and if that business turns into the next Microsoft or Apple, it could experience explosive growth.
One example of this is Beyond Meat, which IPOed in April 2019 at $25. Its share price rose to about $150 in October 2020 -- an increase of 500%.
A small number of IPOs have seen gains as high as 3,000% or more over the five-year period from their IPO date.
Most new companies don’t gain value
Examples like Beyond Meat and the companies that increase their share price by a factor of ten or more are by far the exception rather than the rule.
Most IPOs don’t do very well.
If you look at the five-year returns on every company to IPO between 1980 and 2016, the majority offered negative returns rather than positive returns.
You might overpay
A company going public is an exciting time. Newspapers and websites run headlines about IPOs and you might hear about popular companies going public on the news.
This can lead to higher demand for a company’s shares as investors get caught up in the excitement. In the first days and weeks after the IPO, the company’s shares may be overpriced as people invest for emotional reasons rather than reasons based on research and due diligence.
If a company is a good investment at its IPO, it will likely still be a good investment a few weeks or months after the IPO date, once the excitement and overbuying have passed.
Other Ways to Invest in Ant Group
If you want to invest in Ant Group, buying shares directly isn’t the only way. There are other ways to invest.
Mutual funds & ETFs
Mutual funds and ETFs strive to maintain holdings in accordance with their investment strategies.
This could include funds that focus on tech or finance companies or funds that invest in foreign businesses -- and likely going to purchase shares of Ant Group.
Invest in Alibaba
You could also invest in Ant Group indirectly by investing in Alibaba (NYSE: BABA).
The company purchased 33% of Ant Group in 2018 so by owning some shares in Alibaba, you’ll have exposure to the Ant Group.
Buy from foreign exchange post-IPO
Some U.S. brokerages allow investors to trade on Hong Kong stock exchanges, including big names such as:
Again, there may be different costs to make such trades on foreign stock exchanges.
Investing in IPOs can be exciting but it’s also highly risky. The IPOs that produce huge gains are rare and many will lose value for investors over time.
If you do decide to invest in the Ant Group or any IPO. Remember that investing involves risk and make sure you don’t invest more than you can afford to lose.
You should also make sure you have other investments in more secure investments, such as diversified mutual funds and ETFs, which can make up for the potential poor performance of your investments in individual stocks.