JD.com Beats As Traders Trade

JD.com Earnings Review

JD.com (JD US and 9618 HK) released Q1 financial results after the Hong Kong close that beat estimates on the big three: revenue, adjusted net income, and adjusted EPS. JD’s new food delivery business appears to be off to a strong start, though it will raise concerns about expenses and the firm’s desire to build market share at the expense of profits. JD’s E-Commerce focus on electronics and home appliances increased sales by +17.1% to RMB 144.3 billion ($19.884 billion).

• Revenue increased +15.8% to RMB 301.1 billion ($41.5 billion) from RMB 260 billion, versus expectations of RMB 290.3 billion
• Adjusted Net Income increased to RMB 12.8 billion ($1.8 billion) from RMB 8.9 billion, versus expectations of RMB 10.37 billion
• Adjusted EPS increased to RMB 8.41 ($1.16) from RMB 5.65 versus expectations of RMB 7.02
• Company repurchased a total of approximately 80.7 million Class A ordinary shares (equivalent to 40.4 million American depositary receipts (ADRs)) for a total of approximately $1.5 billion

Key News

Asian equities were mixed overnight as Malaysia, the Philippines, and Japan outperformed. Meanwhile, Hong Kong and India underperformed while Indonesia was closed for Vesak Day, a celebration of the life and Enlightenment of the Buddha.

Hong Kong-listed growth stocks and subsectors, including internet, semiconductors, the Apple ecosystem, i.e., technology hardware and electronics, and electric vehicle (EV) stocks were all hit with profit-taking after yesterday’s better-than-expected US-China trade talks led to substantial gains. Concerns that China’s government will not stimulate the economy as aggressively due to the US-China trade deal and uncertainty around the deal’s timing appeared to be concerns, though simply “the sell the rips and the buy dips” mentality likely led to quick profit taking. China’s government’s focus on raising domestic consumption and real estate prices is likely to continue, regardless of the status of the trade deal. Ironically, President Trump mentioned that China should increase domestic consumption to buy more US goods.

Hong Kong volumes were down -31% from yesterday, though Mainland investors were net buyers of Hong Kong-listed stocks and ETFs via Southbound Stock Connect. Today’s move lower put the Hang Seng, Hang Seng Tech, Shanghai, and Shenzhen indexes back at their Liberation Day levels.

Healthcare stocks in Hong Kong and Mainland China rebounded after Trump’s announcement yesterday on capping drug prices. The lack of movement in the Mainland market shows that domestic issues, as opposed to foreign matters, are weighing on local sentiment. Mainland China-listed equities continue to lack animal spirits as investors want more stimulative economic policies, despite the government’s efforts.

Tencent reports after the Hong Kong close tomorrow. Alibaba, KE Holdings, and NetEase all report on Thursday.

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.20 versus 7.21 yesterday
• CNY per EUR 7.99 versus 8.02 yesterday
• Yield on 10-Year Government Bond 1.67% versus 1.69% yesterday
• Yield on 10-Year China Development Bank Bond 1.70% versus 1.72% yesterday
• Copper Price -0.19%
• Steel Price +1.21%