In Ma we trust

Jack Ma factor makes investors starry-eyed

Is an investment from Alibaba's Jack Ma better than a celebrity product endorsement? Investors seem to think so. The involvement of China's richest man, who controls the country's largest e-commerce group, in a drugmaker's share placement drove up the company's market value up by over $1 billion on January 13. There may be synergies between online shopping and pharmaceuticals, but investors are mostly just starstruck.

Guangzhou Baiyunshan Pharmaceuticals is issuing some 10 billion yuan ($1.6 billion) of new stock to five buyers, including an investment fund associated with Ma. The fund, which is 40 per cent owned by the Alibaba founder, will pay 500 million yuan for a 1.2 per cent stake - a 12 per cent discount to the stock's last trading price on December 3. Baiyunshan's Hong Kong shares promptly rose 19 per cent as they resumed trading.

While there are no obvious synergies from a stake purchase like this, there could - just maybe - be a kind of reputational halo effect. The drugmaker, best known for its herbal tea beverage Wanglaoji, has been struggling against a rival beverage company estimated to have over 50 per cent of the country's herbal tea market. Baiyunshan's shares have declined 16 per cent in 2014. The sight of Jack Ma sipping Wanglaoji on billboards across China could clinch extra sales.

Investors may also be betting on a push into e-commerce. Baiyunshan's newly launched generic Viagra drug may get a boost in sales from a new policy that will allow online sales of prescription drugs. The policy, set to be finalised as early as the end of January, will open up a pharmaceutical market worth $161 billion to online retailers. A minority investment from the fund backed by Alibaba's founder leaves Baiyunshan just two degrees of separation from the $250-billion behemoth.

Still, the overall response to a brush with Ma seems speculative. When Alibaba took a controlling stake in ChinaVision Media group, shares of the TV and film production company jumped by more than 185 per cent. Since then, the company, now rebranded as Alibaba Pictures Group, has seen its shares fall by almost 25 per cent. An indirect stamp of approval from the great man may justify 15 minutes of fame, but lasting celebrity status calls for something more concrete.