President Trump's recent decision to ban Chinese social-media platforms TikTok and WeChat has implications for investors that go well beyond short videos set to music.
While TikTok got most of the press in the United States, WeChat is the much bigger piece of the puzzle. Tiktock-owner ByteDance, and WeChat parent Tencent (TCEHY) aren't household names in the U.S. and their stocks aren't widely held, but Tencent in particular, is a massive company that has fingers in a lot of online life in China and the U.S., but Trump's order seems to be targeting WeChat specifically.
WeChat, which is often referred to as a messaging service, is actually much bigger than that. The platform's messaging app, all by itself, is widely used for both personal and business communication in China. WeChat is also widely used to make payments, both online and in face-to-face transactions. It can can also be used to summon a car service. Its business tools even manage HR functions for Chinese companies. Analysts have said the app is so widely used, smart phones without WeChat would barely be considered smart phones.
Investor Impact
So what happens to American companies, Apple (AAPL) for example, who sell smartphones in China?
So far, some of the implications are unclear. Trump’s executive order will be challenged in court, as TikTok plans to file a lawsuit soon. Additionally, what the orders even mean is still the subject of some debate. We do not yet know the extent of the ban due to the broad use of "transactions". This leaves much of the potential effects of the executive order still in the air. The Secretary of Commerce has 45-days from signing to list the specific prohibitions. Investors will want to watch how this develops closely.
Despite this action targeting WeChat and TikTok, the collateral damage of such may cause American companies, primarily Apple, to lose billions of dollars in revenue from China. While iPhones only comprise 9% of the total smartphone market in China, Apple made a whopping $44 billion in revenues from the Chinese market in 2019 which accounts for roughly 17% of the company’s total revenue. This exposes Apple, and its suppliers, to serious consequences, even before any potential Chinese retaliation is factored in.
Who to Watch Besides Apple?
Apple doesn't publish a specific list of suppliers for iPhones, but companies like Qualcomm (QCOM), Analog Devices (ADI), Skyworks Solutions (SWKS) and Corning (GLW) would likely to hurt by a slowdown in iPhone sales.
Most of Apple's supply chain is located in China as well, which gives the country a lot of power over both Apple, and the ecosystem of companies that supply parts and labor to Apple. Developing a new supply chain at the scale needed to keep the world swiping away on iPhones is the kind of thing that would take years.
Tensions between the U.S. and China seem likely to escalate as we get closer to the election, and possibly even after. Investors will need to monitor this situation when exploring technology-related stocks, particularly those with any kind of hardware business, as much of the global supply chain for those products run through China.
