Stocks In Chinese Technology Drop By More Than $75bn
Tencent and ByteDance, the owner companies of WeChat and TikTok respectively, have been targetted in Trump’s most recent move against China. The move from Trump has given companies in the US 45 days, from Thursday, to stop transactions with Tencent’s WeChat app. WeChat rivals Facebook, Twitter and other social media platforms, with more than a billion users, and is depended on by those communicating to and from China.
A separate executive order has targeted ByteDance’s TikTok app, an increasingly popular app that has exploded in growth since the global lockdowns ensued due to COVID-19, mainly down to its short-form video content.
In the initial backlash from Trump’s order, Tencent saw shares fall by as much as 10.1% in Hong Kong. Whilst some of these losses have now been recovered, sitting at closer to 5%, the sale of so many shares still resulted in a loss of $75.7bn in market capitalisation from Chinese technology companies in Hong Kong.
Semiconductor Manufacturing International Corporation, Xiaomi, ZTE and Alibaba were also amongst the victims of stocks plunging, all of which closed the day trading lower figures than they opened with. ByteDance was exempt from the drops in shares as it is not currently listed on the stock market. The company is currently in discussions with Microsoft over a potential buyout of its US-based business to ensure the app will not be banned on US shores.
Equity traders have gone on to warn that Trump’s statements and orders are so broad, that all US dealings with Tencent and ByteDance could be banned. This wouldn’t only harm the technology divisions of these companies. Tencent has made significant investments into gaming and electric vehicles, owning stakes in Tesla, Fortnite founders Epic Games, and Spotify.
Trump’s decision to bar transactions with Tencent comes in the middle of a strong year for the company. With more people turning to gaming than ever before, due to global lockdowns, Tencent’s stock was up by more than 40% for 2020 to date, and this was after the hit it took following Trump’s executive orders.
“Tencent’s share price had already gone up significantly in the last month,” Kingston Securities’ head of research Dickie Wong said. “After this announcement from Donald Trump, it was the perfect time for profit-taking.” Wong continued.