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3 reasons why Alibaba's IPO is causing a frenzy

There is something of a frenzy about Alibaba's upcoming IPO. It could be the biggest share offer in history and Morningstar says its equity valuation could exceed USD 200 billion. The China based e-commerce company filed for its initial public offering in May and plans to price a deal in early August.

Morningstar has identified three reasons why investing in this giant could make sense. R.J. Hottovy, the research firm's Consumer Equity Strategist, says it has a powerful 'network effect'. It's a rare phenomenon, he says, and is key because the Chinese e-commerce market is in a relatively early stage of its life cycle. As Alibaba expands, this network effect will support the growth over the longer term, he says.

Hottovy also points out that the retail market in China is substantially under-developed, especially compared with the likes of the UK or the US. Alibaba is set to be a leader here and the company could expect increasing market share.

Thirdly, Alibaba looks as though it will take full advantage of changing consumer habits in China. Wage rises, demographic trends and changes in government policy all look as though they'll impact positively on Alibaba's bottom line.

02:40 minutes
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