Chinese micro-blogging social-media site Weibo (NASDAQ:WB) is often referred to as that nation’s version of Twitter (NYSE:TWTR). Yet, holders of WB stock shouldn’t be thinking of Twitter right now. They should be weighing TikTok’s troubles – and wondering if Weibo might get caught in the crossfire.
For many years, I’ve issued a warning to folks who look to me for investing advice: Do not try to fight the government. Put your political leanings aside and learn to appreciate the tremendous power that the world’s lawmakers have over the financial markets.
One heavily populated nation has already taken swift action against Weibo. Will other nations follow suit? U.S. President Donald Trump’s recent words and actions suggest that further problems may indeed befall WB stockholders.
A Closer Look at WB Stock
The rise and subsequent fall of WB stock is almost Shakespearean in its story arc and tragic conclusion. Like King Lear’s hubris, the WB share price got too high and mighty for its own good.
To give you some perspective, note that WB stock was trading near the $12 level in September 2015. In early 2018, WB shares were priced at more than $130 apiece.
At that point, seasoned investors should have seen the Macbeth-like ghost of the dot-com bubble appearing. That was the signal to take profits and run away. Unfortunately, the wealth destruction that followed was profound and unforgiving.
As of Aug. 7, WB stock was trading below $35 per share. Already battered stockholders couldn’t possibly have predicted the one-two punch of rising Sino-U.S. tensions and a global pandemic this year.
Yet, here we are and the outlook remains empty and dreary for WB stock. On the other hand, value-focused investors might point out that the stock offers a low trailing 12-month price-earnings ratio of 19.8.
But does a low valuation necessarily mean that WB shares are a bargain? Like it or not, the current sociopolitical climate makes it hard to justify a position in WB stock at any price.
Blocked in India
In a crushing blow to Chinese social-media sites, the government of India announced in June that it was blocking 59 popular Chinese apps.
The nation’s government implemented this block “in view of information available they are engaged in activities which is prejudicial to sovereignty and integrity of India, defence of India, security of state and public order.”
TikTok is the most obvious victim of this action, but two apps from Baidu (NASDAQ:BIDU) were also named: Baidu Maps and Baidu Translate.
And, as you might have guessed by now, Weibo has a spot on the infamous list. Losing access to a nation of nearly 1.4 billion people is certainly problematic for Weibo. There’s no way that things could possibly get worse for the company now. Right?
Behold, the Trump Hammer
On Aug. 6, President Trump signed executive orders that gave Americans 45 days to cease doing business with TikTok and WeChat, the latter being a Chinese social-media platform controlled by Tencent (OTCMKTS:TCEHY).
Similarly to India’s block, the White House’s ban was based at least partially on national-security concerns. And while the media has been busy focusing on the implications for TikTok, WB shareholders should consider the collateral damage.
As if all that weren’t enough, U.S. Secretary of State Mike Pompeo added fuel to the fire recently, alleging that some Chinese tech companies are “feeding data directly to the Chinese Communist Party.”
Of course, all of this could be quickly resolved if the president reverses his executive order. The cycle of brinksmanship and détente has been a rinse-and-repeat strategy throughout the ongoing U.S.-China tug-of-war, after all.
For stock traders, however, there’s little use in trying to predict the unpredictable. The president might call off his executive order, or he might not. International tensions could ease or escalate. It’s best just to sit on the sidelines and enjoy the show from afar, I say.
The Bottom Line
The suffering of WB stockholders has been long-standing and painful. Investing on the Chinese Twitter probably seemed like a good idea when the shares were in the $130 range.
That was then, and this is now. The air is heavy with geopolitical tension and no one appears to be backing down. Do you really want to have a dog in this fight? For the time being, at least, a bet on Weibo is a clear no-no.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.