President Trump is targeting Chinese tech firms and that could have a huge impact on shareholders of Tesla, Activision Blizzard, Spotify, Snap and others. It’s time for traders to take some profits.
A new executive order Thursday would bar US companies from transacting with ByteDance and Tencent Holdings, the Chinese companies behind TikTok and WeChat.
Investors should worry about the unintended consequences.
For the past decade, managers at Tencent have been quietly building stakes in Western tech and entertainment companies. Today, many of these businesses are leading the way in in the rise new digital technologies.
According to a Reuters report, Tencent has owns a 100% stake in Riot Games, the developer of League of Legends. The company also acquired minority stakes in Activision Blizzard ( (ATVI) - Get Activision Blizzard, Inc. Report), the maker of the Call of Duty video game franchise; and Epic Games, the studio behind Fortnite, the most popular video game in the world.
Tencent, in 2017, bought 12% of Snap ( (SNAP) - Get Snap, Inc. Class A Report), the popular messaging platform. The same year the Chinese conglomerate added a 5% stake in Tesla ( (TSLA) - Get Tesla Inc Report). A year later, its Tencent Music Entertainment division partnered with Spotify ( (SPOT) - Get Spotify Technology SA Report). And Universal Music Group, the world’s biggest recording label, received a 10% investment in 2010.
Now all of these transactions may be under the microscope. The executive order issued by the White House is so broad nobody knows for certain what it means.
Wilbur Ross, the U.S. Commerce Secretary, Reuters notes, will identify transactions covered under the order sometime within the next 45 days.
What are investors supposed to do in the interim?
Leaving the politics aside, uncertainty might be great for reality TV but it is bad for markets. Tesla, Activision, Spotify and Snap have been big winners this year, advancing 256%, 46%, 71% and 31% respectively.
Traders should lighten up here. There is no telling where all of this ends.