SHANGHAI (Reuters) - Shares in Alibaba Group ( BABA ) jumped 4.2% on Tuesday as investors cheered its inclusion on China's mainland stock exchanges after the e-commerce giant upgraded its Hong Kong listing to primary status last month.

Its transition to a dual primary listing has paved the way for the company to be added to the Stock Connect Scheme that allows mainland investors to buy the stock of the country's biggest e-commerce firm by market value. Alibaba ( BABA ) announced the inclusion late on Monday evening.

Morgan Stanley analysts had predicted that the addition of Alibaba ( BABA ) to Stock Connect would be an "imminent share price catalyst" and estimated net inflows could be between $17 billion and $37 billion for Alibaba ( BABA ) from mainland investors over a 12-month period.

But UBS analysts noted the market reaction was rather muted.

"While some estimates suggest that $12 billion of onshore funds could flow in, there's hardly any reaction in shares," they said in a note, adding that mainland trading currently accounts for about "a third" of the daily turnover in Hong Kong's $5 trillion market.

A boost from mainland investors would certainly be welcome for Alibaba ( BABA ), which has seen Hong Kong listed shares fall more than 70% since a multi-year regulatory crackdown launched in 2020.

More recently, a sluggish Chinese consumer market hit by a prolonged property crisis and concerns about employment and income security has stalled the growth of e-commerce in the world's second-largest economy - with low-price competitors such as PDD Holdings ( PDD ) making a grab for market share.

In late August, Chinese regulators announced Alibaba ( BABA ) had completed a three-year rectification period following the levying of a record fine for monopolistic practices in 2021, raising hopes that Alibaba ( BABA ) might now be able to draw a line under its prolonged period of regulatory headaches.

Joining the Stock Connect Scheme has helped boost turnover for companies such as smartphone maker Xiaomi ( XIACF ), and around 10% of Tencent ( TCTZF ) shares are now held by mainland investors via the scheme.