JD & Walmart: Since 2016

Walmart and JD.com first tied up on June 20, 2016 when the Walmart exchanged its Chinese e-commerce business called Yihaodian for a 5% stake in JD.com (145 million shares) worth $1.5 billion when JD.com’s US listing was trading at $21.06. The stake was increased to a total of 289 million shares/nearly 10% of the company. The mutually beneficial partnership allowed Walmart stores to leverage JD.com’s logistics for delivery while JD.com took over the website. Walmart exited its ownership stake at $24.95 versus yesterday’s closing price of $28.19 and Monday’s $29.54. Walmart made money on its investments but considering JD.com’s high was $106.88 on February 17, 2021, they clearly left some money on the table by selling near their entry point. Why did they sell? According to Reuters, Walmart has stated (apparently only to them as I don’t see the statement elsewhere) that:

• "This decision allows us to focus on our strong China operations for Walmart China and Sam's Club, and deploy capital towards other priorities”
• “In the latest quarter, Walmart reported a 17.7% year-on-year rise in revenue from its China business to $4.6 billion on the back of strong growth in its Sam's Club warehouse chain and its digital offering.”
• “Walmart added that membership income in China from its Sam's Club business grew 26% as member count continues to increase. The company has about 48 clubs in China.”

The block sale was fully subscribed, which I suppose is a positive as it indicates buyers were at the ready. JD.com filed that it had bought $390 million worth of stock, which drained the remainder of its stock repurchase plan. This indicates that JD.com might not have had much notice of the sale, otherwise it could have asked its Board to expand its buyback during its Q2 results. JD.com didn’t. So, was it blindsided? It is impossible to know. While the World War II saying is that “Loose lips sink ships”, loose lips clearly weighed on US-listed China stocks yesterday. We would suspect that informed investors knew a block sale was coming, the space was sold outright, or cash was clearly freed up by selling the space down. Yes, Vipshop's weak Q3 guidance weighed on the E-Commerce sector, but the selling, especially in Tencent’s unsponsored ADR TCEHY due to the immensely successful launch of Black Myth: Wukong from Tencent-backed Game Science, made little sense to me.

Where do we go from here?

• I would watch for JD.com to ask the Board to expand its buyback as the company has ample cash to buy stock at these levels. From their Q2 financial results, the company has $28.8B of cash and short-term investments on its books.  

• In Q2 June 2016, JD.com did $9.9B of revenue, growing +35% year-over-year (YoY) and Adjusted EPS of $0.04. In Q2 June 2024, JD.com did $41B of revenue off -2% YoY and Adjusted EPS of $1.29.

• JD.com’s P/E IS 7.43 and Forward P/E of 7.84.

• Remember JD.com’s Q2 results were better than expected.

• Remember, MSCI indices will reduce China's weight in the MSCI Emerging Markets Index as part of a routine rebalance at month end, bringing China's weight to 24% despite the country's GDP of $18 trillion. Meanwhile, India will be at a 20% weight, with a GDP of $3.5 trillion. MSCI published these new weights a few weeks ago, so any active positioning ahead of the rebalance has likely already occured. They don’t ring the bell at the top or the bottom, though there are signs.

Key News

Asian equities were mixed on light volumes and little news as investors await the US Fed's Jackson Hole meeting. The Philippine Stock Exchange was closed overnight for "Ninoy Aquino Day", commemorating the assassination of former President Benigno “Ninoy” Aquino, Jr.

Hong Kong was lower as the Walmart's sale of its JD.com stake seemed to spook investors. However, Hong Kong listings were not down nearly as much as their US counterparts were yesterday. Hong Kong’s most heavily traded stocks by value were JD.com, down -8.74%, Tencent, up +0.32% versus its American Depositary Receipt (ADR), which was down -2.04% yesterday, Alibaba, down -0.56% versus its ADR, which was down -3.42%, Kuaishou, down -9.91% after yesterday's better-than-expected results though weak gross merchandise value (GMV) was cited as a reason for the drop, and AIA, down -1.34%. Baidu fell by -1.90%, which is light compared to the -2.44% decline in its ADRs yesterday. Trip.com gained +0.06% versus its ADR, which fell -2.68% yesterday. Meanwhile, NetEase was down -1.4% versus its ADR, which fell -2.52% yesterday. 

Online travel company Tongcheng Travel (780 HK) gained +5.95% after yesterday’s strong Q2 financial results. Intra-day Hong Kong Exchange financial results were a small miss, sending the stock down -1.47% though off intra-day lows. Car manufacturer Geely gained +0.13%, which was well off intra-day lows following a revenue beat.

Electric vehicle (EV) stocks were mixed on EU tariffs as BYD gained +0.18%, Li Auto fell -0.61%, XPeng fell -2.18%, and NIO fell -1.89%. Hong Kong's short volume did pick up in JD.com, Kuaishou, Alibaba, and Tencent overnight, though, if we can get a bounce in ADRs, it may be problematic for the short tomorrow. Mainland China remains in its funk, posting small losses on light volumes despite National Team ETFs seeing an uptick in volumes. There were 9 Mainland stocks hitting 52-week highs versus 424 hitting 52-week lows as investors give government policies a thumbs down. It is hard to ignore Shanghai approaching major support levels after Shenzhen broke below support yesterday. It's time to push the gas pedal on stimulus, in my opinion.

The Hang Seng and Hang Seng Tech indexes fell -0.69% and -1.82%, respectively, on volume that increased +25.89% from yesterday, which is 92% of the 1-year average. 148 stocks advanced, while 314 declined. Main Board short turnover increased by 24.49% from yesterday, which is 102% of the 1-year average, as 19% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). Large cap and value stocks fell less than small caps and growth stocks. The Materials and Energy sectors gained +0.46% and +0.04%, respectively, while Real Estate fell -1.64%, Financials fell -1.15%, and Consumer Discretionary fell -1.05%. The top-performing subsectors were food & beverage, durable consumer goods, and telecommunications. Meanwhile, retail, insurance, and real estate services were among the worst-performing subsectors. Southbound Stock Connect volumes were light as Mainland investors bought a net $36 million worth of Hong Kong-listed stocks and ETFs, including Tencent, which was a very small net buy, and Kuaishou, which was a very small net sell.

Shanghai, Shenzhen, and the STAR Board fell -0.35%, -0.28%, and -0.27%, respectively, on volume that declined -8.60% from yesterday, which is 64% of the 1-year average. 1,777 stocks advanced, while 3,044 declined. Large capitalization and growth stocks fell less than small cap and value stocks. The top-performing sectors were Materials, up +0.48%, Information Technology, up +0.27%, and Consumer Discretionary, up +0.24%. Meanwhile, Communication Services fell -0.67%, Consumer Staples fell -0.59%, and Real Estate fell -0.55%. The top-performing subsectors were motorcycles, computer hardware, and electronics components. Meanwhile, agriculture, internet, and diversified financials were among the worst-performing subsectors. Northbound Stock Connect volumes were light, though buy & sell data is no longer available on a daily basis. CNY and the Asia Dollar Index gained versus the US dollar. Treasury bonds rallied. Copper fell while steel gained.

Last Night's Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.13 versus 7.14 yesterday
• CNY per EUR 7.93 versus 7.91 yesterday
• Yield on 10-Year Government Bond 2.16% versus 2.17% yesterday
• Yield on 10-Year China Development Bank Bond 2.24% versus 2.24% yesterday
• Copper Price: -0.30%
• Steel Price: +1.27%