Eighteen months ago, a Barron’s cover story warned of a mounting tech cold war between the U.S. and China. The battle lines were drawn around the future of telecommunications and 5G. This past week, the White House opened a new front in the fight, making it more dangerous for investors.
On Thursday night, the Trump administration issued executive orders banning U.S. companies from working with TikTok, the popular social-media site owned by China’s ByteDance, and
the hugely popular global service owned by China’s
(ticker: 700.Hong Kong).
The TikTok news wasn’t a surprise. The administration had targeted TikTok for weeks, leading
(MSFT) to consider a purchase of TikTok’s U.S. operations. That deal could work out nicely for Microsoft (see page 9).
But the Tencent news stunned investors. Its stock, which is listed in Hong Kong, tumbled on Friday before closing down 5%. It’s still up 40% so far this year.
Tencent has been steadily building a global reach, and its
app has 1.2 billion users across the world.
The app has expanded beyond voice messaging and texts with services that allows users to post photos and videos, along with a
-like timeline. Users can also do everything from banking to booking train tickets, among other functions.
Although the vaguely worded U.S. order focuses on WeChat’s operations, it left questions about whether other parts of Tencent’s business could be next, a move that would upend global companies relying on WeChat to do business in China.
President Donald Trump considers TikTok and WeChat to be security risks. WeChat could be removed from Apple and Google’s app stores in 45 days, when the orders take effect. Tencent said that it is reviewing the order, and TikTok reiterated that it would work with U.S. officials to find a way forward.
Gavekal Research’s Dan Wang wrote in a research note on Friday that a narrow interpretation of the executive order would block access to TikTok and WeChat in the U.S., while a broader one could potentially prevent any U.S. firm from supplying technologies to Tencent or ByteDance.
The news rippled through the videogame industry, where Tencent is a dominant force. The company owns Riot Games, publisher of League of Legends, and holds a 40% stake in Epic Games, publisher of Fortnite.
China equity strategist Laura Wang points out that Tencent’s direct revenue exposure to the U.S. market is just 2%, and that most of it is tied to gaming, not WeChat.
It’s a sprawling business that tech investors can’t ignore. On Friday, Activision shares fell 5%, while the Nasdaq Composite snapped a seven-day winning streak.
Additional reporting by Eric Savitz
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