Investors should use caution when weighing an investment in Alibaba Group, the Chinese e-commerce giant debuting Friday as largest U.S.-listed initial public offering in history, says Gordon Chang, a contributor to the global intelligence and forecasting website LIGNET.
"Alibaba is a Chinese e-commerce company, but it's not just an e-commerce company. It is the
e-commerce company. It has 80 percent of the Chinese market, and that means it's about topped out," Chang said Thursday on "The Steve Malzberg Show" on Newsmax TV.
Story continues below video.
Note: Watch Newsmax TV now on DIRECTV Ch. 349 and DISH Ch. 223
Get Newsmax TV on your cable system – Click Here Now
"People are going to watch this because everyone is thinking about Facebook. Facebook had this enormous IPO; it tanked in the beginning, now it's recovered. People are starting to wonder whether Alibaba will be the next Facebook."
Over the short-term, the stock will likely offer "some pop" as most IPOs do, according to Chang.
"This one has been priced a bit more conservatively because the underwriters are concerned about the Facebook problem, but long-term this is a very bad deal for investors," he said.
First of all, the structure Alibaba is using is illegal under Chinese law, which bans foreigners from holding any interest in Chinese Internet companies.
"They've got around this with something called a 'variable interest energy structure,' which means investors are going to buy shares in a Cayman Islands company. The Chinese Supreme Court has held this to be illegal," Chang said.
In addition, consumer activity in China is stagnating and may be falling, according to independent data, according to Chang.
"That means that Alibaba's growth prospects in China are not what people say they are. Just a couple of days ago, Jack Ma talked about Alibaba growing in Europe and in the U.S.
"That's a real indication that he doesn't think very much of his own China market. That's what they're selling tomorrow. They're selling the promise of the China market. I don't think it's there," Chang said.
Special: 5 Stocks Billionaires Are About to Buy (See Them Now)
© 2021 Newsmax. All rights reserved.