International relations are never easy. However, the U.S.-China trade war has hit all the ugly branches of the geopolitical forest. And when I look at recent news, I can’t help but feel incredibly pessimistic for companies like JD.com (NASDAQ:JD). If you’re heavily vested in JD stock, you might want to consider easing off your position if you haven’t already.
In late June, I warned readers that the head-fake in JD.com stock might not last too long. At the time, shares were up over 49% year-to-date. But throughout July, the JD stock price mostly traded sideways. By the end of last month, the Chinese internet firm started to lose its grip.
On paper, the company is still enjoying a very positive year. Compared to January’s opening volley, the JD stock price is up nearly 29%. But that ignores the context that since July 24, shares have plummeted nearly 19%.
Worse yet, I think the pain in JD.com stock is only starting to get real. Here are three reasons why:
The Trade War Will Only Get Uglier for JD Stock
Historically, the U.S. has always had an uneasy relationship with Asian powers and people. Go dust off some of your textbooks, and you’ll learn about “Yellow Peril.” Essentially, this is a xenophobic philosophy that East Asian cultures and ambitions represent an existential threat to the West.
Yellow Peril didn’t just hurt people’s feelings. It had real consequences through justifying incredibly racist policies, such as the Chinese Exclusion Act of 1882, and the forced internment of Japanese-Americans during World War II.
Today, I argue that we have a modern version of Yellow Peril in that our Asia policy is unusually combative. For instance, our relationship with China has quickly submerged to one of the worst in memory. Moreover, the Trump administration has previously slapped tariffs on Japan, a vital U.S. ally in the Pacific region.
Although I’m bringing up a controversial element of our history, it’s important for investors of JD.com stock to know this. Undeniably, we have an anachronistic President who has no qualms about being politically incorrect. Thus, you have a foreign administration seeking respect, and a domestic one unwilling to give it.
Add to this volatile mix our own history with East Asian relations, and you have a troubled outlook for the JD stock price.
U.S. Amped Up the Stakes
Invariably, many Trump supporters will claim that the administration is only taking China to task for legitimate grievances. I agree. From the evidence that I’ve seen, the Chinese government has orchestrated multiple acts of corporate espionage. Certainly, they don’t play nice.
However, I still believe that historical U.S. animosity toward East Asia remains a relevant factor. That’s because the Trump administration has had opportunities to bring normalcy to U.S.-China relations. But unfortunately for American commercial interests in the here and now, we haven’t sealed a deal.
Instead, we’re doing the opposite: we’re ramping up our heated rhetoric and actions. Recently, our government designated China as a currency manipulator. Moreover, an editorial from The Wall Street Journal declared that the trade war has transitioned to a currency war.
And if that weren’t enough, CNN reported that Trump is losing control of this situation. Naturally, the mainstream media is focusing on the visible evidence of the conflict; namely, that international investment indices are crumbling. Obviously, this circumstance has done no favors to the JD stock price, nor to compatriots like Alibaba Group (NYSE:BABA) or Tencent (OTCMKTS:TCEHY).
But let’s also consider the political consequences. Through these actions, Trump has forged a “tough guy” image. Backing off will make him look weak to his supporters, and volatile to fence-sitters.
Plus, the Chinese are not going to take too kindly to this escalation. Therefore, JD.com stock is a name to avoid.
We Own the Most Important Market
When we talk about certain growth companies, we always mention their potential for international expansion, especially in China. But for names like JD stock, their growth strategy focuses on the U.S. market.
Logically, this is a huge problem if you have a portfolio significantly levered to JD.com stock. With tensions skyrocketing over the last few days, the nearer-term forecast is very poor. Plus, the current administration almost seems to delight in turning up the heat. As I explained, I don’t think this is a coincidence.
But let’s say we do get that trade deal. Eventually, Chinese flagship companies will face the same regulatory scrutiny that American technology giants like Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have incurred. If watchdog agencies have a dim view of our own organizations, they’ll really work over Chinese firms.
In other words, whether we have a trade war or not, Chinese corporate ambitions will hit a brick wall. That’s why I’m going to sit out JD stock until the coast is truly clear.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
