JD.com (HKG: 9618) (NASDAQ: JD) shares are down another 6% in Hong Kong this morning. This follows the 8% fall in the New York quote yesterday. The issue here is how much does the one quote influence the other? That being something of a problem for dual listed stocks like JD. Which is the tail and which the dog being wagged? This problem gets worse when we consider that the Hong Kong and New York markets aren’t really open - not in volume - together at any point in the day. So there’s always a delay in the price move in one market being reflected in the other. Such trading gaps can make stock price moves rather jerky, each market possibly over-reacting to the other given there’s little direct trade between the two. Anyone trying to arbitrage - in quantity - also needs to take a tie risk which just is one of those problems.
JD.com share price from Google Finance
Yes, we know it shows 11% down, But that’s rather the point. That’s the NY fall of 8% yesterday plus a further fall. So, what’s going to be the effect on New York pricing when that market opens? Or even, is it NY which drives the price and so it will revert on opening?
As to the cause of this change it seems to be general macroeconomic worries about the Chinese economy: “JD.com Inc. slumped to a record low in Hong Kong, after a slew of Wall Street brokerages cut the outlook for the e-commerce retailer on concerns that China’s consumption growth will remain sluggish. At least seven brokerage firms have either downgraded the stock or lowered price targets in the past two days. That includes Morgan Stanley, which reduced its call to equal-weight and slashed its target by 40%, as well as Citigroup Inc., which cut its price estimate by a third. All of them cited worries about how JD will grow its revenue amid the weaker macro environment in China.”
The background to this is that most economists would suggest that China should increase consumption and reduce - heavily - the investment portion of GDP. That, unfortunately, would not solve the property market problem. So, and therefore, the CCP seems to be increasing incentives to invest. Which, obviously enough, then reduces the portion of the economy that can be devoted to consumption.
It’s possible to hope that perhaps macroeconomic policy could be better but we have to play the JD.com hand with the cards we’ve got - lower consumption would be bad for a retail giant.