Alibaba IPO Survey: Unclear How Many U.S. Investors Will Buy

The fate of Alibaba Group Holding Ltd.’s initial public offering could hinge on whether the Chinese Internet behemoth can get U.S. buyers who have not yet invested in Chinese stocks clamoring for shares.

As of now, it’s still unclear whether these buyers can be convinced, according to a survey of more than 300 institutional investors conducted by the ConvergEx Group.

The survey shows widespread optimism about the fate of Alibaba’s business model and its potential performance as a publicly-traded stock, yet that optimism didn’t translate into plans to buy into the company.

Fewer than half–or 43%–of those surveyed say they plan to buy shares of the company, even though 64% see Alibaba as a good long-term investment. 88% of those surveyed expect the stock to appreciate in the first month of trading.

Fund managers who have not yet invested in Chinese stocks appear to be the least likely to buy Alibaba. Only 38% of those fund managers said they would buy Alibaba’s stock compared to 60% of fund managers who have already purchased shares of Chinese companies.

Attracting interest from these non-traditional buyers is likely to be the biggest challenge for Alibaba’s underwriters and key to any short-term or long-term pop in its price.

“The challenge of an IPO is creating that illusion of scarcity,” said Nicholas Colas, ConvergEx Group’s chief market strategist. “To do that in a deal of this size, you need to get those equity investors who haven’t invested in Chinese equities on board.”

Alibaba is expected to raise more than $20 billion, which would make it one of the largest offerings ever.

Chinese companies have returned to the U.S. to debut after a near standstill on such deals following accounting frauds at a handful of Chinese companies, including timber company Sino-Forest Corp.

Beyond the memory of such turmoil at Chinese companies, a U.S. government commission recently  gave U.S. investors another reason to think twice before buying Chinese I.P.O.s, specifically noting that there could be "major risks" stemming from the unusual legal structure of Alibaba and other Chinese companies. Chinese companies have typically employed corporate governance structures used to get around restrictions by the Chinese government on foreign ownership of businesses.

The Chinese e-retailer dwarfs its U.S. rivals. According to the WSJ, Alibaba’s online transactions last year were one-third larger than all of the combined value of sales at both Amazon.com Inc.(AMZN) and eBay Inc.(EBAY)