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Why JD.com’s share price popped on Hong Kong listing

JD.com’s [JD] share price — on the Nasdaq — has traded relatively flat since the Chinese tech company listed on the Hong Kong Stock Exchange on 18 June.

Meanwhile, the JD.com’s freshly debuted Hong Kong shares, which trade under the ticker 9618, are down 0.77% as of 1 July close. JD.com had priced its shares at HK$226 and managed to close its first day of trading at HK$234.

JD.com’s share price continued to lose ground over the next couple of days. It fell 2.5% by the 22 June before recovering 2.9% back to HK$234.80 on 24 June. The share price has since dipped again, but trades around the HK$232 mark as of 1 July.

JD.com’s secondary listing in Hong Kong comes at a time when many other Chinese firms are putting off plans for a US listing amid rising tensions between two of the world’s largest economies. But why the sudden rush?

 

Rising Hong Kong dual listings

The reason for JD.com and many other companies fleeing to Hong Kong is because of the US Congress plans to push through a law subjecting foreign companies listed on American exchanges to provide full access to audit reports.

This was cited in JD.com’s Hong Kong prospectus as a potential risk, as failure to disclose certain details about parts of the business could merit a delisting in the US, under the new rules. Hong Kong is expected to see a swathe of equity raisings this year due to this regulatory pressure. 

JD.com was right to be confident about the move, as its local clout led its share price to jump nearly 3.5% on its debut. Demand for JD.com’s Hong Kong shares from investors was robust, with the retail offering 179 times oversubscribed, according to the Financial Times.

The so-called homecoming was Hong Kong’s largest listing so far this year, according to Reuters, coming in at $3.87bn.

$3.87billion

Valuation of JD.com's listing

  

The company’s Nasdaq share price listing fell on the news of its secondary listing, shedding 1.9%. The fall was contrary to sentiment in the rest of the market, as the Nasdaq had been buoyed by a rebound in retail data.

Other Chinese companies that have recently taken the plunge include gaming giant NetEase [HKG: 9999]. NetEase’s share price also rose on the day of its listing, raising $2.7bn.

Alibaba [HKG: 9988] also completed a secondary listing in Hong Kong last year. It is one of JD’s e-commerce rivals and was one of the first US-traded Chinese companies to head into this territory, raising $11bn.

 

A boost in capital

JD.com has stated that it intends to use the money it raises “to invest in key supply chain based technology initiatives to further enhance customer experience while improving operating efficiency”. Both these have been crucial to e-commerce due to an uptick in orders during coronavirus lockdowns. 

Ling Chenkai, the company’s vice president, told Asia Business Report that the secondary listing was a “big thing for JD.com”, as it will promote the brand in the greater China area.

"It also can help those Chinese investors and Asian investors to understand JD.com better and more clearer which can help us to gain trust from those investors and customers," he told the BBC.

“It also can help those Chinese investors and Asian investors to understand JD.com better and more clearer which can help us to gain trust from those investors and customers” - Ling Chenkai, JD.com’s vice president

 

JD.com’s Nasdaq stock is still very much a buying opportunity, from the perspective of analysts polled by MarketWatch, the share price has been rated a buy by 19 of them.

Analysis from Zacks Equity Research also suggests that JD.com’s share price has good prospects. “The Zacks Consensus Estimate for JD.com's full-year earnings has moved 100.79% higher within the past quarter. This shows that analyst sentiment has improved and the company's earnings outlook is stronger,” the firm said.

Forecasts are generally positive, owing to JD.com’s forward planning to mitigate any outfall from tensions between China and the US. The company’s investments in business infrastructure, such as supply chain technology, should put it in good stead as shopping habits shift to online. 

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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