There aren’t many FTSE 100 stocks connected to the impending US TikTok ban.
After all, TikTok is owned by ByteDance – a private Chinese company. It’s not listed on the FTSE 100, the UK, or anywhere else for that matter.
Not only can’t I buy ByteDance shares anywhere, but I might never be able to. Beijing has repeatedly blocked attempts to IPO.
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But while ByteDance is closed off to retail buyers, it’s open to institutional buyers like funds.
Chunky position
One of those funds is Scottish Mortgage Investment Trust (LSE: SMT)– known for investing in early-stage tech companies – which holds a ByteDance position.
So here’s the situation. I own Scottish Mortgage shares. Should I be worried about the TikTok ban? Or is this a rare opportunity to buy more while they’re cheap?
To start with, it looks like the ban will go through. US lawmakers want to end all access to TikTok (or “digital fentanyl”, as one called it) while Beijing has influence over it.
The bill passed the first vote in a 352-65 landslide and Joe Biden said if the papers land on his desk then he’ll sign them.
What’s the problem?
The plan will permit ByteDance to sell it to American owners – keeping the product, but chucking out the China connection.
The problem? Chinese regulators have already declared they’ll block any move.
The most likely scenario then is ByteDance loses its largest non-China market and the US sets a precedent for other countries to ban TikTok.
The US wasn’t even the first. India has already banned Chinese-owned Tiktok for similar reasons, as a political response to a 2020 skirmish on the India-China border that left 20 soldiers dead..
So the future for TikTok outside China looks pretty shaky to me, but what impact will that have on Scottish Mortgage shares?
Well, a silver lining is that ByteDance makes up 2.2% of the Scottish Mortgage portfolio. So for every £50 in the fund, £1 is in TikTok.
At such a modest holding, the entire world could ban it tomorrow and the shares would only receive a slight bruising. This is one advantage of broad funds that can absorb a crisis or two across its many stocks.
The impact on the share price was minimal too, dropping 1.2% in a day. So it’s not even a chance to buy more cheap shares either. In fact, Scottish Mortgage shares rose 7% a day later because it announced a £1bn buyback. The shares rocketed to a 52-week high!
In summary, the market cares more about share buybacks than a mini-crisis in one of the fund’s holdings.
My move
As for my own decision, I won’t be selling the shares. Why? Because I understand and accept the risks that come with unlisted, foreign, or early-stage companies.
Sometimes these firms change the world – and the fund’s share price has risen 20 times since 2008. I suppose I’m hoping that will happen again.
But with a higher reward comes higher risk. In this case, it’s American lawmakers getting angry about a very popular Chinese smartphone application.
Either way, I’ll continue holding.
