JD.com Beats Estimates In Q1

China Last Night

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Asian equities were mixed overnight on lower volumes as growth stocks outperformed value.

E-Commerce company JD.com beat analyst expectations in its Q4 results, reported overnight. While JD’s percentage increases year-over-year (YoY) are not large, the key was management’s statement that Q2 gross merchandise value (GMV) is rising faster than in Q1. This is due to China’s consumers coming back online slowly as confidence is rebuilt following the repeal of China’s zero COVID policy. JD.com is focused on electronics and big-ticket items, which have come back slower than luxury goods, restaurants, hotels, and other services. Management did a good job keeping costs down, which led to a pop in profitability. JD’s CEO Xu Lei will leave the company for “personal reasons” after a little more than a year on the job though he spent a decade with JD. The new CEO Sandy Xu served as JD’s CFO after two decades with PWC.

Revenue increased +1.4% YoY to RMB 243B ($35.4B) versus analyst expectations of RMB 240B
Adjusted Net Income increased to RMB 7.9B ($1.4B) from RMB 4.7B YoY versus analyst expectations of RMB 5.3B.
Adjusted EPS increased to RMB 4.76 ($0.69) from RMB 2.53

Today is MSCI’s Semi-Annual Index Review will be announced with multiple “refreshes” to their indices. At month end, tonight’s announcement will provide the recipe for the refreshed benchmarks as index funds and ETFs need to trade their MSCI benchmarked funds in order to match the refreshed index. There has been a fair amount of chatter Full Truck Alliance (YMM US) could be added to MSCI indices. We’ll find out tonight!

Alibaba, among other internet names, got a significant boost from JD.com’s positive Q1 results. Online car dealer Autohome also reported better-than-expected results for Q1 on China’s surging car sales year-to-date, which were also exhibited yesterday in Li Auto’s results.

China released April credit data overnight. Inflation continues to fall in China from already low levels. This would have been seen as a positive, though markets were tepid due to slowing loan growth from March. Nonetheless, China’s low CPI and positive M2 growth stands in stark contrast to Western economies. Theoretically, this creates a favorable environment for equities, though economics takes time to translate in stock performance, evidently. Slowing loan growth may mean more fiscal stimulus, which would be positive for markets.

China April Economic 2023 Data

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Softbank’s latest financial results weren’t 100% clear, but they alluded to the fact that they may no longer be a shareholder in Alibaba after having sold shares through forward contracts. If so, the removal of a significant seller removes a significant overhang on the stock. These are things that happen at the bottom, which is why I am writing down today’s date: May 11th, 2023.

US-listed China stocks were weaker yesterday on the results of US Public Company Accounting Oversight Board (PCAOB) inspections in China as some sources noted “challenges” in their review. But there were no challenges in terms of access. Yes, audit firms will need to improve their processes to satisfy the PCAOB review, which will be positive in the long run. This morning, the PCAOB further clarified that remediation will take place to fix the deficiencies. Meanwhile, the China Securities Regulatory Commission (CSRC) reiterated its willingness to work constructively with the PCAOB and protect the interests of global investors. The PCAOB has done an excellent job articulating their thorough process!

On the geopolitical front, Biden said to reporters that he may call Xi soon. Meanwhile, China’s foreign minister Qin Gang had a meeting with his counterpart in France on Wednesday. There is also talk that Biden and Xi may meet at the upcoming APEC conference. In my book, these are green shoots for US-China political relations.

The Hang Seng and Hang Seng Tech indexes diverged to close -0.09% and 1.34%, respectively, overnight, on volume that decreased -2% from yesterday. Mainland investors net purchased $268 million worth of Hong Kong stocks via Southbound Stock Connect.

Shanghai, Shenzhen, and the STAR Board diverged to close -0.29%, 0.17%, and 0.03%, respectively, overnight on volume that decreased -12% from yesterday. Foreign investors net purchased $4 million worth of Mainland stocks via Northbound Stock Connect.

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