Go long JD.com, short Tencent, Hedgeye says in new pair trade
Michael Vi/iStock Editorial via Getty Images

Investors should go long JD.com (NASDAQ:JD) and short Tencent (OTCPK:TCEHY) in a a new pair trade from Hedgeye.
Hedgeye has been less negative on JD since it decided to "significantly" downsize Jingxi Pinpin in late March, according to analyst Felix Wang. With the restructuring of its new businesses, JD can focus on a return to profitability and margin improvement, "which are critical parts of JBD's Bull thesis." Although JD's partnership with Tencent (OTCPK:TCEHY) may end later this month, Hedgeye questions "how much does JD really need from Tencent's ecosystem." 
Hedgeye also recommended shorting Tencent (OTCPK:TCEHY) as its recovery appears more challenged than its peers. Wang believes Netease (NTES), Bytedance (BDNCE) and HoYoverse are beginning to post "serious challenges" to Tencent's game empire. 
" Tencent in 2022 is quite different from Tencent in 2020, and it's not all because of the regulators," Wang wrote in a preview item for the pair trade on Thursday. "The company is going backwards in many divisions. With distress in all of its segments (VAS, advertising, fintech/Cloud) under a tough competitive and regulatory environment, it's hard to own this company at this time."
Wang expects that JD (JD) and Tencent (OTCPK:TCEHY) will report "ugly, messy" Q1 results in mid-May given the Covid lockdowns, though JD has more positive catalysts than Tencent. He sees a potential "divergence" in the coming months by ~30%.
JD (JD) shares fell 7.2%, while Tencent dropped 2.4%.
Recall Friday, Alibaba, JD.com, Baidu gained as China may end crackdown to help ailing economy.