BCO115 Financial Markets: Yum China Holdings Stock Price Investigation

This report provides an in-depth analysis of Yum China Holdings Inc. stock, focusing on price trends over a four-month period, with a more detailed examination of the last three weeks. The study aims to understand the relationship between external business environment changes and stock ...Read More

FINANCIAL MARKETS

Introduction
The stock exchanges are rightly stated to be the reflection of the global economies and the
changes in the external business environments. A share market or a financial market denotes
a place where the shares of the publically listed organisations are traded in the electronic
form. The prices of the public traded stocks are influenced by the external changes in relation
to the political, economic, technological, demographic environment of the organisations. The
external changes that influence the price of a stock are not only the ones that occur in the
financial market in which the shares are listed, but also in the country of the operations in the
case of the global organisations. Thus, any event can trigger the sentiments of the investors
and accordingly the share prices of a stock fall or increase.
The aim of the following report is to study the price trends of the stock of a publically traded
stock, to understand the relationship between the changes in the external business
environment and the stock prices. The organisation chosen for the analysis is the Yum China
Holdings Inc. The share prices as listed on the New York Stock Exchange have been used to
analyse the price trends.
Financial Markets
The share markets or the stock exchanges are the place for the consistent trade of the
securities that is the buying and selling the stock of the companies that are publically listed
and invite the investments from the public at large. Some of the key stock exchanges of the
world are the New York Stock Exchange, NASDAQ, Japan Exchange Group, Hong Kong
Stock Exchange, Toronto Stock Exchange, Shenzen Stock Exchange, Bombay Stock
Exchange and others (Statista, 2020). The publically listed companies are required to follow
the requisite compliances for the shares to be listed on the stock exchanges and the foreign
companies for a country can also list their stock exchanges on the global platforms.
Background of the organisation
The company Yum China Holdings Inc. is a China based restaurant company that is currently
operating in 1300 towns and cities in varied regions and provinces of China, with around
9200 restaurants (Yum China Holdings Inc., 2020). The shares of the company are traded
under the symbol “YUMC” on the New York Stock Exchange. The company is engaged in

the operation of the leading restaurant concepts of China which includes Pizza Hut brands,
Taco Bell, KFC, East Dawning, COFFii & JOY, Little Sheep and others. The integration of
these brands is done to match the local culture of China and the daily lives of the customers
(Yum China Holdings Inc., 2020).
Analysis of the Price Trends
The share markets are rightly stated to be the dominant pricing mechanism that is reflective
of the underlying business performance along with the sentiments of the investors (Simply
Wall Street, 2020). The following segment would include the study of the price trends of the
above mentioned company over the period of last four months, starting from November. In
addition, the analysis of the price trends would include a more detailed price analysis of the
prices in the last three weeks. Following is presented the graphical representation of the price
trends of Yum China over the period of four months as retrieved from Yahoo Finance.
(Source: Yahoo Finance, 2020)
While the red line is representative of the YUMC stock movements, the blue line is
representative of the NASDAQ movements or the market movements as a whole. Thus, on a
prima facie level it can be stated that the share prices of the Yum China Holdings are more
volatile in relation to the market sentiments as whole. The price trend are explained below.

It is to be noted that while the prices were low on the mid November, that is around $ 42.40
on the November 6th, the same increased rapidly during the December. There have been
prescribed a range of behavioural factors that are responsible for the fluctuations in the share
prices and the trade of a security. One such factor that has been prescribed as a part of the
efficient market hypothesis is the calendar effect. According to this condition, the festivals
celebrated in the country can have significant impact on the economic conditions of a country
(Kumar and Jawa, 2017). December being the festival month of the country from the point of
Christmas celebrations and the New Year in January, led to the hike in the prices of the stock
Yum China Holdings. The price hike is depicted in the daily share price table as provided
below.
Date Open High Low Close
Adj
Close Volume
07-10-2019 42.92 45.00 42.25 44.49 44.24 4035900
14-10-2019 44.23 44.98 43.09 43.82 43.58 6375600
21-10-2019 44.10 44.47 42.65 43.57 43.33 6375200
28-10-2019 44.45 44.90 41.23 41.44 41.21 15780700
04-11-2019 41.94 43.90 41.80 43.85 43.61 14820600
11-11-2019 43.38 43.85 41.97 42.79 42.55 9886800
18-11-2019 42.91 43.33 41.76 42.28 42.05 8455300
25-11-2019 42.47 44.75 42.40 44.52 44.27 9693700
02-12-2019 44.67 45.05 43.80 44.79 44.67 9008100
09-12-2019 44.71 47.42 44.49 47.28 47.15 10487400
16-12-2019 47.50 49.00 47.13 48.66 48.53 10804800
23-12-2019 48.69 48.79 48.01 48.66 48.53 3183600
30-12-2019 48.73 49.15 47.81 48.42 48.29 6145400
06-01-2020 48.03 50.74 47.20 48.80 48.67 7320800
13-01-2020 48.90 50.60 48.13 49.85 49.71 9204600
As shown in the table above, it is evident that due to the calendar effect, the highest price of
the security has reached to $ 49.71 in the month of January because of the Chinese New Year
that fell on the January 25 and similar festive effect. However, as the share price has reached
record high, so has the volume increased significantly. Post the share price increase in
January, the share price fell drastically in the February itself.

The volatility of the share prices can be attributed to a range of factors explained below. The
prime factor which led to the severe downfall in the share prices of the organisation Yum
China Holdings Inc. is the public health crisis that originated in China and now has become a
global health crisis, the effects of which can be seen in numerous countries. As stated by the
Capital Economics, the outbreak of Coronavirus would influence the global economy
negatively to the extent of $ 280 billion in the first quarter specially the food, hospitality and
the travel industry. The coronavirus has led to the restaurants of the selected company being
closed in the areas of Macau, Guangzhou, Shanghai, Hong Kong and others. It has been
estimated that the sales and the customer traffic is likely to be hurt more in the coming
months. In relation to the chosen organisation Yum China, it must be noted that there is a
temporary close of the branches to the tune of 30% of the total branches in China (Ray,
2020).
The table below is descriptive of the share prices of the stock Yum China Holdings Inc. for
the passing three weeks.
Date Open High Low Close Adj Close Volume
11-02-2020 42.86 44.23 42.85 43.81 43.69 5659100
12-02-2020 44.25 45.48 44.15 45.42 45.30 3515900
13-02-2020 44.89 45.27 44.40 45.01 44.89 2966300
14-02-2020 45.13 45.21 44.34 44.85 44.73 1987900
18-02-2020 44.80 45.06 44.44 44.80 44.68 4381900
19-02-2020 45.03 46.25 44.91 46.04 45.92 3243800
20-02-2020 46.06 46.76 45.70 46.05 45.93 3487100
21-02-2020 45.83 46.16 45.49 45.87 45.75 2740400
24-02-2020 43.83 44.64 43.44 44.11 43.99 3836800
25-02-2020 44.52 45.29 43.47 43.81 43.69 4149600
26-02-2020 43.91 44.45 43.29 43.51 43.39 4135900
27-02-2020 43.00 44.97 42.37 43.75 43.63 4660800
28-02-2020 42.60 43.79 42.26 43.79 43.67 5600400
02-03-2020 43.85 44.29 43.01 44.29 44.17 3540700

03-03-2020 44.27 45.05 43.67 44.77 44.77 2739100
04-03-2020 44.78 45.29 44.49 45.23 45.23 2556200
05-03-2020 44.45 45.05 43.47 44.17 44.17 2953200
06-03-2020 43.13 43.86 41.90 42.57 42.57 3561300
As evident from the table above, it can be stated that the prices of the stock are within the
range of $40 - $46. However, the volume of the trade has been significantly reduced over the
period of the three weeks. While the trade volume on 11 February was 5659100, the same has
been declined to 3561300. The decline when quantified in the percentage terms is calculated
to be around 37%. Hence, there is a sharp decline in the volume of the trade of the shares of
the Yum China Holdings. The comprehensive effect behind the fall in the share prices can be
attributed to the inefficient business operations which includes fall in the revenues of the
enterprise. As per the estimate, it has been assessed that the revenues of the organisation
would fall to the tune of 50% in the first quarter in the year 2020 (Seeking Alpha, 2020). The
severe decline in the sales would lead to the much obvious operating losses to the entity, and
the investors are aware of the said effect beforehand. In the words of the Chief Financial
Officer of the entity, the quarter four sales of the year 2019 would drop significantly because
of the travel restrictions the other government work.
In addition to the factor of the global health concerns in China, the yet another external factor
that has led to the volatility in the financial markets influencing the share prices of the stated
company is the US China Trade War. The US China Trade war has led to the global
economic slowdown leading to the steep fall in the shares due to the uncertainty in the global
supply chain. China being one of the key links in the global supply chain is not only
impacting the share prices of the companies in the said area but also the ones that are closely
related to the country because of the import export businesses. The sluggish Chinese
economy can be stated to be yet another major cause of the volatility in the share prices of the
selected organisation and others in the food and hospitality industry (Rossolillo, 2020).
Recommendations
As per the analysis conducted in the previous parts, few recommendations are extended to the
entity as listed below. The key recommendation is to expand the operations of the company
beyond the cities and provinces of Mainland China. This is because when the business

operations are concentrated majorly in one area, the slightest of the external event in that
particular area can lead to significant operational challenged as happened in the case of the
entity Yum China Holdings Inc. In addition, the entity should further collaborate with the
organic and healthy food brands as well, from the point of view of diversification.
Conclusion
The discussions in the previous parts lead to the conclusion that the share prices of the public
listed securities are influenced by the events in the external business environment, to the tune
of the economic, technological, social and political changes. In order to demonstrate the
volatility of the financial markets, the case study of the Yum China Holdings Inc. was taken
into consideration where the price trends over the period of four months were analysed. The
particular attention was given to the price trends of the past three weeks. It was assessed that
till the public health concerns in the country China were unknown and mixed with the
calendar effect, the share was trading at a high. Gradually with the spread of the health issues
in the various parts of the country not only affected the business operations in the form of
dipping sales, but also led to the temporary shutdown of the stores. Thus, the share prices
crashed particularly in the month of the February. The comparison of the trends with the
global index NASDAQ also led to the observation that while the global markets also failed,
the share of the Yum China Holdings fell at a greater pace. This was particularly because of
the location of the most of the stores that belonged in the varied parts of China. Hence, as per
the analysis in the report it can be concluded that the share markets depict the investor
sentiments as well as the underlying business performances of the stocks, which lead to the
fluctuations in the share prices of the stock.
References
Kumar, H. and Jawa, R. (2017) Efficient market hypothesis and calendar effects: Empirical
evidences from the Indian stock markets. Business Analyst, 37(2), pp. 145-160.
Ray, H. (2020) Restaurant Industry's Traffic Woes Deepen on Coronavirus Scare [online]
Available from: https://finance.yahoo.com/news/restaurant-industrys-traffic-woes-deepen-
130601667.html [Accessed on: 09 March 2020].
Rossolillo, N. (2020) KFC and Pizza Hut Stores Shuttered by Coronavirus Take a Bite Out of
Yum China's Forecast [online] Available from: https://www.nasdaq.com/articles/kfc-and-

pizza-hut-stores-shuttered-by-coronavirus-take-a-bite-out-of-yum-chinas-forecast [Accessed
on: 09 March 2020].
Seeking Alpha (2020) Yum China: A Comprehensive Analysis On Coronavirus [online]
Available from: https://seekingalpha.com/article/4325164-yum-china-comprehensive-
analysis-on-coronavirus [Accessed on: 09 March 2020].
Simply Wall Street (2020) Introducing Yum China Holdings (NYSE:YUMC), A Stock That
Climbed 65% In The Last Three Years [online] Available from:
https://simplywall.st/stocks/us/consumer-services/nyse-yumc/yum-china-holdings/news/
introducing-yum-china-holdings-nyseyumc-a-stock-that-climbed-65-in-the-last-three-years/
[Accessed on: 09 March 2020].
Statista (2020) Largest stock exchange operators worldwide as of May 2019, by market
capitalization of listed companies [online] Available from:
https://www.statista.com/statistics/270126/largest-stock-exchange-operators-by-market-
capitalization-of-listed-companies/ [Accessed on: 10 March 2020].
Yahoo Finance (2020) Yum China Holdings, Inc. (YUMC) [online] Available from:
https://finance.yahoo.com/quote/YUMC/history?
period1=1575849600&period2=1583712000&interval=1d&filter=history&frequency=1d
[Accessed on: 09 March 2020].
Yum China Holdings Inc. (2020) About Yum China [online] Available from:
http://ir.yumchina.com/about-yum-china [Accessed on: 09 March 2020].
Yum China Holdings Inc. (2020) Our Brands [online] Available from:
http://ir.yumchina.com/our-brands [Accessed on: 09 March 2020].