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China's Effect On The FAANG Stocks

Aug. 05, 2018 6:40 PM ETMETA, AMZN, AAPL, NFLX, GOOGL, GOOG20 Comments
Michael Chandler profile picture
Michael Chandler


  • Resolution to the Chinese trade dispute is by far the most important.
  • Theft of intellectual properties as well as regulation blocking China's markets is at the core of the issue.
  • US Technology IP is the most sought out by the Chinese Government.
  • The FAANG stocks are clearly being targeted. In fact, China has created its own version of each of the FAANG companies.
  • China combined with company fundamentals creates a significant amount of caution for these companies in the near-term.

Who really knows what the current administration is doing regarding foreign trade. I do believe it is evident that the president prefers bilateral agreements. Though there appears to be multiple bilateral negotiations going on simultaneously I can’t help but believe the most pressing is China.

Furthermore, it appears the negotiations, or lack thereof, with China appear to be more about the theft of intellectual properties and regulations that require companies to share their IP with the Chinese government prior to doing any business in the Chinese mainland, then with actual tariffs.

I have mentioned in previous articles that the Chinese practices have been indiscriminate. Not only has China stolen IP from the United States, but pretty much throughout the developed world.

It appears the United States is now building a coalition in its attempt to combat China’s actions.

This week Congress has passed tougher regulations, making it difficult for China to purchase or invest in US technology and other industries having national security concerns. By the way, this may be the first piece of legislation that had bipartisan support.

Many countries of the EU are also considering similar legislation. It appears Germany, the EU’s economic backbone, is one of those closely monitoring Chinese activity.

Seeing how China appears to be in the crosshairs of US foreign trade, I thought it would be interesting as well as prudent to evaluate the exposure the FAANG stocks have to China. It seems to me any negative outcome to the US negotiations could have a significant economic impact on these five companies.

These companies have enjoyed a 35% annualized growth rate for several years now. As a result, some could argue their current market of valuations are getting quite lofty. Recently they have all experienced higher volatility relative to the rest of the market and some of their

This article was written by

Michael Chandler profile picture
I have been a Investment Advisor Represented since 1989, Currently owner and founder of Dogwood Capital Management. Investment advisory services offered through World Equity Group, Inc., member FINRA and SIPC, a Registered Investment Adviser Dogwood Capital Management is not owned or controlled by World Equity Group, Inc.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investment advisory services offered through World Equity Group, Inc., member FINRA and SIPC, a Registered Investment Adviser. Dogwood Capital Management is not owned or controlled by World Equity Group, Inc.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (20)

Michael Chandler profile picture
I thought you would find this interesting. It appears US is not the only country concerned with Chinese trade practices. In fact it seems there is something going on in concert with the US, Germany and the UK. www.cnbc.com/...
As a Chinese who have also lived in the U.S. for 7 years, I must say that the author does not know enough about China. The author states that "Facebook is investing in young startups to develop China’s own version of social media", but the fact is that WeChat is a combination of Facebook, Instagram, Messenger and Online Payment that more than 1 billion Chinese are using. We also have Weibo which is identical to Twitter.
Michael Chandler profile picture
Actually tencent developed we chat as an ecommerce tool and will compete with the likes of Visa and MC. It's chat features are like messenger as you say. There are many chat apps available. I don't think it is a FB or Twitter however. Totally controlled by government.Maybe we should of had a little more regulation. here, lol. For the record FB is investing in start ups in china and FB was blocked from entry.
WeChat has this "Moment" function where people post images, videos, links and other stuff that friends can see. It's identical to Facebook. Even the advertising methods are the same as they insert one advertisement between every 5 feeds from friends. It has been in WeChat since 2006 or something, and many Chinese people, including myself, spend more than 1 hour scanning through Moments. It is naive to think that a "copy mastermind" like Tencent would not copy Facebook's successful model...
Snoopygolf profile picture
They thought that they could tame the dragon with capitalism.

The biggest evil with communism is the people who go for that life view, tend to have a complete "Us vs. Them" mentality on every minute aspect of life. They probably view their "theft" as comeuppance for a million "atrocities" that we perpetrated on them.

We opened the door to the devil and he walked on in. And now everybody is quietly surprised, but still trying to figure an angle on how to make money from Old Scratch.

Not a Trump guy, but his people may be right about shaking up this thing while we're still strong enough to do so.
Yah, right, when you are THE biggest buyer (importer) in the world, you have the power, need to use to max when the opportunities knock! - it may not come again in the future.
yeah, right, Chinese government! Why are the US government is so dumb then? Americans are dumb?
NV_1790 profile picture
Actually, Facebook does have some exposure to China since Chinese businesses advertise there to target consumers around the world.
I am no China fan, and I am glad that America is doing something about it, but one thing I hear over and over about something like " regulations that require companies to share their IP with the Chinese government prior to doing any business in the Chinese mainland...", I mean were companies so naive that the reason why Chinese government asked this were to copycat or to use these innovations as stepping stone for further their agenda - Did they not know this?

I mean they had their own greed about Chinese market, right? It is no use crying out loud now when the companies willingly(?) handed out most valuable assets, companies had choice, they did not have to take Chinese government proposal, they could refuse (well, I do not know the surrounding circumstance at the time, so maybe I am saying this, but....).

It seems like now they regret what they had neglected to protect as they are realizing Chinese government seems to be about to surpass DM - well, at least we should be glad we are doing something about it now.
Tripodo Capital profile picture
The Chinese government has used tactics such as law enforcement raiding corporate offices in China to forcibly attain IP. So it's not always willingly given.
Still, the companies should have been smart enough to protect the most valuable assets, and thought about all kinds of possible scenarios including possible forceful raid just in case considering their political risks involved, and should have written down on their contractual agreement in case that kind of raid happened then the damage would be what?, to deter that kind of raid or put clause that would prevent triggering such raid so that the raid would not get justified. Oh, well, lesson well learned!
Michael Chandler profile picture
Good point, the Chinese market is very attractive to companies and they have basically sold their IP to China in many cases for its access. Google told them no in 2010, and now they are considering developing China's regulated version.
Interesting... What about tencent...
Michael Chandler profile picture
Great company, in fact this is one of the companies Google is looking to partner.
bart_sst profile picture
The author stated that, "I never thought I’d see the day where a company could sell a phone for $1000."

The iPhone is not a phone; it's a device that includes phone functionality. That may help clear things up for you…
Michael Chandler profile picture
Lol sorry I stand corrected.
J Cooper profile picture
Iridium satellite phones were >$1,000 in the 1990s.
GorillaTicTacs profile picture
In the army around 1998 I had 6 of them on my property book with a value of $15,000 a pop.
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