As legislators in the U.S. make moves to potentially ban Chinese apps like TikTok, the ramifications for American companies and the stock market are looming. A recent bill passed by the U.S. House of Representatives to ban TikTok underscores the perceived threat it poses. If this ban is approved by the U.S. Senate, it could even lead to ByteDance divesting its TikTok division. In anticipation of such actions, investors are advised to consider exiting stocks vulnerable to Chinese app bans.
PDD Holdings (PDD)
Known for its subsidiary Temu, PDD Holdings (NASDAQ:PDD) stands to possibly benefit in the short term from a TikTok ban. Positioned as a cost-effective competitor to Amazon in the e-commerce sphere, PDD also competes with TikTok Shop in offering budget-friendly Chinese products directly from manufacturers. However, relying on expensive social media advertising for consumer outreach poses a challenge as the company seeks to bolster its market presence.
A shift in sentiment among U.S. retail investors towards Chinese companies could further dampen PDD’s price stability post a TikTok ban. Additionally, the new venture Temu is still in the process of establishing its business reputation in the U.S., further complicating matters for PDD.
Alibaba (BABA)
Similar to Amazon in China, Alibaba (NYSE:BABA) faces similar risks should TikTok be banned in the U.S. The e-commerce giant dominates the Chinese market by offering affordable goods directly from manufacturers, and its international footprint is largely through AliExpress and cloud computing services. A crackdown on TikTok might jeopardize Alibaba’s positioning, especially in Western markets where maintaining a positive reputation is crucial.
Adding to this, Alibaba’s history with regulatory authorities in China, notably former CEO Jack Ma’s run-in with the government, could further complicate matters for the company. With the new CEO aligning closely with the Communist Party, Alibaba’s standing amidst geopolitical tensions remains precarious.
HelloFresh (HELFY)
As one of the major spenders on TikTok advertising, HelloFresh (OTCMKTS:HELFY) faces the risk of losing significant exposure in the event of a TikTok ban. Leveraging social media marketing for its meal kit delivery services, HelloFresh heavily relies on TikTok’s broad reach in the American market. A ban could force the company to pivot towards more costly advertising platforms, impacting its ad spending and revenue from new customers.
Given TikTok’s appeal for food enthusiasts and recipe aficionados, HelloFresh stands to take a hit from its absence on the platform. However, the company’s resilient business model suggests that any stock price fluctuations due to app bans might be temporary.
Amidst these potential shifts, investors are advised to closely monitor developments surrounding Chinese app bans and their implications on the U.S. stock market.