Why Does Walmart Keep Upping Its Stake In Chinese E-Commerce Player JD.Com?

Donald Bowers/Getty Images for JD

This past Friday, after the close of regular market trading, Walmart filed a Schedule 13G with the SEC that showed that it had increased its stake in Chinese e-Commerce giant, and No. 2 player behind Alibaba, JD.com to 289.1 million shares, or 12.1%.

On October 5, 2016, Walmart filed another Schedule 13G that revealed that it had almost doubled its stake in JD.com from a prior 5.9% to 10.8%.

And in June 2016, Walmart took an initial 5.9% stake when it sold its Chinese e-commerce business to JD.com in exchange for that initial stake. The deal included Walmart signing over ownership of its Chinese online marketplace, Yihaodian, including the brand name and website, to JD.com in exchange.

So, within a period of seven months, Walmart has increased its stake in the No. 2 online retailer in China from the original 5.9% to the current 12.1%.

Why is Walmart increasing its stake so quickly in JD.com? After all, the press and darksiders are constantly bemoaning the following, and much, much more:

"The Chinese economy is falling off the cliff."

"Chinese companies numbers are fraudulent/cooked."

"The Chinese economic data is manufactured."

However, if one looks at Walmart, the truth is in the money and Walmart is investing a lot of money in JD.com.

In addition, if one looks at the Chinese indices, they have held steady over the six months, despite getting a bit of a smack-down now and then since President Trump won the elections - thanks to his tough stance on trade and tariffs.

I am on record with my predictions for 2017 that this will be the year where the Chinese stocks that trade on our shores outperform the indices handily.

Given the fact that JD.com does most of its business within China, even if President Trump were to get into a trade and tariff back and forth with China, the effect on JD.com would be minimal.

Talk about blowing a meaningless issue out of proportion by the short-side.

How many investors in the West even know that inflation in China remains under 2% but wages have been increasing by 8-9%? That is a great thing and not a negative, despite the spin in the West. Rising wages means rising discretionary income and rising incomes means growing spending. Thus we have the Chinese GDP set to grow at the fastest rate bar none for the No. 2 economy in the world.

What would you as an investor do?

Would you do what Walmart is doing and invest in JD.com, or keep listening to the negativity and mostly false darkside commentary that goes on and on like a broken record?

JD.com will not report numbers till the first week in March, otherwise investors would have already got a look at Q4:16 numbers from the company that should be as strong as those that Alibaba reported, if not stronger.

At Friday's closing level, Walmart's 12.1% stake in JD.com was worth $4.87 billion.

Not exactly chump change, no?

Not dumb money either no matter how the darkside spins it. (Back in June when Walmart took the initial stake, shares of JD were trading at under $21 per share).

Shares of JD.com closed at $28.32, up $0.15 per share in regular market trading this past Friday.


(Long JD, long and short options)

