Tencent [HK:700] just claimed the 10th spot for the world’s most valuable companies by market capitalisation. However, the Chinese kingpin, along with tech giant Alibaba [BABA], was then immediately hit by US sanctions.
This article was originally written by MyWallSt. Read more insights from the MyWallSt team here.
What is the U.S. ‘Notorious markets’ list?
The 'notorious markets' list compiles companies that are said to be engaging in mass counterfeiting, copyright piracy, or trademark abuse. The United States Trades Representatives (USTR) consider these activities damaging to “U.S. innovation and creativity” and says that it “harms American workers.”
This includes rip-offs of established brands ranging from the likes of Nike [NKE] to Dolce Gabbana to Michael Kors and others. It’s not exclusive to fashion brands, but typically they receive the brunt of the impact. If you wanted to look at it this way, it’s similar to how German retailers Aldi and Lidl operate, a pair well-known for their copy-cat branding approach.
How will this affect Alibaba and Tencent?
When it comes to Chinese companies, Alibaba and Tencent are the pair that have ruled the roost for the past decade, and both have caught the attention of investors, though neither company is without risk. The tech crackdown in China has no end in sight, and US sanctions certainly won’t help when it comes to picking stocks for a portfolio that you hope to rely on.
It could potentially damage the brand reputation too. Not that consumers aren’t generally aware of what they’re buying — some do in fact opt to pay a lesser price for the perceived brand value — but it could harm overall sales in the US.
Are Chinese stocks a good investment right now?
While it’s always a good thing to have geographic diversity in your portfolio, unfamiliar markets can sometimes leave us clueless about what’s really going on, and unnecessary headaches for investors. You can always achieve diversity by investing in home nation companies that have a strong geographic mix; a global presence with healthy operations outside of the US too, like Apple [AAPL] for example. It’s important to relay the principles of ‘Buying what you know’ and ‘investing in your circle of competence’ when it comes to these predicaments.
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