What happened
Shares of JD.com (JD 2.61%) were drifting lower today one day after the stock soared after the Chinese government said it would do more to create stability in financial markets. It also said that its crackdown on tech stocks should be over soon.
That news sent JD and other Chinese stocks soaring yesterday with JD.com finishing Wednesday up 39.4%. In a snapback reaction today, the stock was down 6.1% as of 11:49 a.m. ET with other Chinese stocks pulling back as well.
Image source: JD.com
So what
There was no specific news out on JD today, nor did there appear to be any further announcement from Chinese regulators, who seem to have reversed course after eviscerating Chinese stocks with over a year of a regulatory crackdown that has included fines, forced divestitures, blocked initial public offerings, and tighter regulations designed to encourage competition, limit economic inequality, and boost "common prosperity."
JD has not been significantly targeted by the government, but the crackdown has led to an investor exodus from China as many feel that the sector is not safe as it doesn't play be the same rules of American capitalism. Additionally, threats from U.S. regulators to delist Chinese stocks listed in the U.S. have also weighed on the sector, but Chinese regulators said they were working to accommodate American auditing rules to ensure that Chinese stocks won't be delisted.
The sell-off seems to show that investors are still struggling to find an equilibrium point in JD shares and China stocks more generally. As you can see from the chart below, the stock has fluctuated wildly over the past week.
The news has changed quickly and uncertainty over the government's policy, the potential delisting of Chinese stocks, and the war in Ukraine are all weighing on investors.
Now what
As a business, JD still looks strong as the e-commerce company, which is the largest retailer in China, reported 23% revenue growth to $43.3 billion in its fourth-quarter earnings report, but for now, investors seem primarily concerned about China's regulatory policy and if the crackdown has ended.
If the government sticks by its promise, JD stock should be a winner as it looks cheap compared to historical levels.
