India gave a lot of love on Valentine’s day as the government banned 54 apps of Chinese origin including Sea Limited‘s top Free Fire game. It sent Sea’s share price down by 18%.
Some investors may shun China stocks because of the fear of regulation but such risk is no longer contained domestically. In a globalised and polarised world, we are seeing escalating geopolitical risk.
Companies are expanding into different regions and markets and if the political masters do not see eye to eye with their origin countries, the companies become the sacrificial lambs in the tussle.
China isn’t the only country with a huge domestic market. India has it too and it is now shutting companies out unless they can get some advantages out of the arrangement working with foreign companies.
For example, many US companies have to partner with Reliance/Jio in order to operate in India. And this is corporate relationship is premised on the relationship between US and India. Any major disagreement or tension between the countries can affect the companies.
India and China are not friends. They often have border clashes and territory disputes. India has been banning Chinese apps in recent years so this is not the first time.
In this case, investors would argue that Sea is not a Chinese company because the founders are Singaporean. Just that they were born in China before settling down in Singapore.
But if you look at the largest shareholder, Tencent, is a Chinese company. So how do you define what is Chinese or not? Depends on how you see it and India has her definition.
India only accounted for 2.6% of Sea’s mobile game revenue so it should not warrant a drop like this. It could be an overreaction but I think it is more likely that the market is pricing in additional risks – it could be catering for more bans in the future.
Investors like to see their companies growing bigger and expanding to all over the world. But that also means that investors will get regular heart attacks on geopolitical issues. I don’t see it changing any time soon. So be mentally prepared.
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