Is JD Stock A Buy Right Now As China Regulators Keep The Pressure On?


JD.com (JD), like all the other large internet companies in China, has been constrained in the past year due to heavy-handed regulations by government authorities. Now, with indications the regulatory pressure may be easing, is JD stock a buy?




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China stocks have been hammered this past year as government regulators have issued a series of new rules aimed at banning unfair competition. The regulatory tightening started with a trickle, but intensified in terms of its duration, intensity and scope.

It’s hit China stocks hard. This includes Alibaba (BABA) Tencent Holdings (TCEHY), Baidu (BIDU) and Vipshop (VIPS).

Recently, though, China stocks  are bouncing off bottoms after a year-long slump, amid attractive valuations and expectations that regulations and policy hurdles have eased.

JD stock is up about 15% since Jan. 5. Alibaba stock is up about 20% since rebounding off its low on Dec. 29. Baidu is up 14% this year. Tencent is up 9%.

China stocks were hammered in 2021 amid a regulatory crackdown. Alibaba lost around 50% of its market value last year, as it also faced headwinds from concerns of slowing growth. Value on the Hang Seng Tech Index eroded by roughly one-third in 2021.

It’s not just regulations that are causing trouble for China stocks. Economic fluctuations, supply-chain shortages, the pandemic, weak consumer demand and rising prices of raw materials have all applied pressure.

Partnerships With Walmart, Alphabet

JD’s business operations include strategic partnerships with Walmart (WMT) and Google-owned Alphabet (GOOGL).

Walmart established a relationship with JD.com in 2016 and owns a 9.8% stake in the company. JD’s collaboration with Walmart includes the establishment of a Sam’s Club flagship store and Walmart China flagship store on JD’s website. The two companies have leveraged each other’s supply chain to increase product selection for customers across China, and they’ve partnered on delivery services.

Alphabet invested $550 million in JD.com in 2018, focused on the creation of next-generation retail infrastructure services.

In addition, JD.com is focused on being a leading supply-chain-based technology and services provider. Altogether, JD has many similarities to Amazon. It’s primary competitor is Alibaba.

Challenges Of Buying China Stocks

Investors should be aware of the significant risks with investing in Chinese stocks. The authoritarian state and its regulators can impose sweeping restrictions, fines or bans on major companies. They often do so with little notice or transparency.

The wave of antitrust and regulatory actions by China now underway initially emerged in November 2020. That’s when China halted the planned initial public offering of Ant Group, a financial technology giant spun off from Alibaba. Many China stocks have seen their valuations cut in half.

“Markets hate uncertainty, and the implementation of these internet regulations has created a surplus of that,” said Brendan Ahearn, chief investment officer at KraneShares, a China-focused provider of exchange traded funds. “Many institutional investors are staying on the sidelines until there is clarity on the regulatory end game.”

The IBD Stock Checkup Tool shows that JD stock has a weak IBD Composite Rating of 54 out of 99. When choosing stocks for the biggest potential gains based on the CAN SLIM investment paradigm, focus on those with a Composite Rating of 90 or higher

The stock also has a lowly Relative Strength Rating of 27. The rating means that JD stock has outperformed just 27% of all stocks in the IBD database over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.

Is JD Stock A Buy?

JD stock is not a buy but is beginning to look attractive, especially if it can hold above its 50-day moving average.

If you’re interested in buying large-cap stocks, in these articles you’ll find technical analysis of leading large caps to see if they are in or near a proper buy zone.

You’ll also find alerts to warning signs and sell signals that show when to take your profits or cut short any losses.

And, you’ll also discover if the current stock market trend is conducive to buying stocks, or if it’s an environment where you want to take defensive action and sell.

Also, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets. 

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