Updated Version 1 - Walmart unexpectedly sells off JD.com shares to focus on its own business, hidden competition concerns emerge, causing JD.com's stock price to plummet by more than 10%

(New JD Announcement and Investment Bank Comments)

Shanghai/Beijing, August 21 - Chinese e-commerce leader JD.com (9618.HK) (JD.O) saw a sharp drop of more than 10% in its Hong Kong stock on Wednesday, dragging down the overall performance of the Hong Kong internet sector. Major shareholder Walmart (WMT.N) is seeking to sell its stake in JD.com for up to nearly $4 billion, aiming to focus on developing its business in China. Some investment banks believe that Walmart and its Sam's Club both cooperate and compete with JD.com, leading to potential short-term fluctuations in JD.com's stock price.

JD.com's Hong Kong stock plummeted by as much as 12% on Wednesday, hitting a low of HK$98.7. After releasing a repurchase-related announcement at noon, the decline narrowed to within 10%.

According to a term sheet seen by Reuters, Walmart is seeking to raise up to $3.74 billion by selling its stake in JD.com, with the U.S. retailer stating that it will focus on its own business in China.

As JD.com's largest shareholder, Walmart stated in a declaration that JD.com has been an important partner for the past eight years, and Walmart is committed to continuing its business relationship with JD.com. In response to Walmart's sale of shares, JD.com expressed confidence in the future cooperation between the two parties.

Citigroup believes that with the recent strong sales momentum of Walmart stores and Sam's Club in China, as well as the expiration of an eight-year non-compete agreement, Walmart may decide to reallocate funds for its own store expansion.

Citigroup also mentioned that while Walmart is likely to continue relying on JD.com for instant delivery services, the competition and cooperation between the product categories offered by Walmart and Sam's Club and JD.com's retail categories still exist. "Although the valuation is not high, we believe that JD.com's stock price may experience range-bound fluctuations in the near term."

Investment bank Fubon commented on the event, stating that Walmart's sale of JD.com shares was unexpected by the market, but it is reported that Walmart's sustainable business relationship with JD.com remains unchanged. Fubon believes that JD.com's competitive moat comes from its strong supply chain capabilities and long-term profit prospects, with long-term profit targets intact, maintaining a buy rating.

JD.com announced at noon that it spent approximately $390 million to repurchase its shares on August 21, 2024, and has fully utilized the repurchase limit of the $3 billion share repurchase plan approved in March 2024.

Due to its better-than-expected performance, JD.com's Hong Kong stock has been strong recently, with a maximum increase of nearly 9%. However, after the news of Walmart's share sale, the gains of the past two days have been completely wiped out. JD.com's Hong Kong stock has been declining for three consecutive years, with a drop of about 10% so far this year. Its U.S. stock fell by 4.6% on Tuesday, with a year-to-date decline of about 2.4%.

Amid geopolitical concerns and worries about the Chinese economy, the Chinese internet sector has been underperforming in recent years. The Nasdaq Golden Dragon China Index (.HXC) fell by 4% on Tuesday, with a year-to-date decline of 14.2%, continuing the three-year downward trend.

The Hang Seng TECH Index (.HSTECH) plummeted by nearly 3% at one point, with a year-to-date decline of nearly 10%, also continuing the three-year decline.

Well-known overseas capital has previously made significant reductions in holdings of some leading Chinese companies. In July this year, renowned investor Warren Buffett's investment company Berkshire Hathaway (BRKa.N) continued to reduce its holdings in Chinese electric vehicle giant BYD H shares (1211.HK) by cashing out approximately HK$340 million, reducing its stake to less than 5% Berkshire has been holding 225 million H-shares of BYD since September 2008. After holding for 14 years, its selling actions were first exposed in August 2022. The selling paused last October and resumed in June this year.

In addition, three sources said that the Hong Kong-based hedge fund Strategic Vision Investment (SVI) has liquidated its main investment fund, the Value Multiplier Fund, which mainly invested in Chinese stocks.

One of the sources said that SVI took this action considering the tense geopolitical situation and changes in the regional investment landscape, believing that there is limited room to expand its long-short investment strategy focused on China. (End)

(Reporter Liu Luoyan/Su Yongyun; Editor Wu Yunling/Tian Lanqin)