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Asia Tea Time - Cup 47 ☕

This week I talk banning TikTok in the US, where to buy broad-market ETFs, and Hong Kong’s new security law.

Macro in Asia

US house committee advances bill to ban TikTok

A US house committee unanimously approved a bill that could ban the ByteDance-owned TikTok app in the US.

Why it’s happening

  • So, the US and China aren’t getting along. Beyond just semiconductors and Taiwan, data protection is another area where the two countries are fighting it out. 
  • The fact that TikTok has data on 170 million American users isn’t sitting well with politicians.
  • TikTok has said it houses its American data in the US and would never share it with ByteDance but those reassurances aren’t cutting it. 

Why it matters

  • TikTok is insanely popular in the US. It also has a history of riling up American’s political elite. 
  • Former President Donald Trump tried to ban the app – via an executive order – in 2020 that would have seen ByteDance have 45 days to sell the app or face a ban. However, federal judges blocked it. 

What’s next?

  • With the US presidential election taking place this year, investors can expect China-bashing rhetoric to ramp up in the months ahead.

Tim’s Take 

TikTok has been a worldwide phenomenon. Its unique short video format lends itself to viral hits and the app has upstaged the likes of Meta’s Facebook and Instagram.  

But is a ban actually a realistic prospect? Never say never but there are further significant hurdles to overcome.

Unlike China, which ironically could ban anything it wants whenever it wants, the US system operates under the rule of law.

That also means any potential legislation moves at a glacial pace. The recent house committee was only the first step.

The US political system then needs to move the legislation through the house and the senate for votes before it finally goes to the President to sign it off.

A lot could happen before that even comes to fruition. While there’s bipartisan agreement that the US needs to do more to protect Americans’ data from falling into Chinese hands, there could be a different President in the White House before any legislation arrives there.

And Trump now – in true Trumpian style – has made a U-turn and recently declared that getting rid of TikTok would mean “Facebook and Zuckerschmuck will double their business”. 

So, while Biden this week said he will sign any legislation that bans TikTok, he might not be in office when that time comes. 

As is always the case with US politics, the headlines mask a much more complicated process. What is certain is that the China-US relationship will continue to be intense.

Tim's Money Tip of the Week

If we think about buying the broad global stock market, then exchange-traded funds (ETFs) are the best way to access it.

But should we be buying ETFs in the US only? For any investor, the choice of ETFs listed in the US is unrivalled.

However, for international investors who aren’t US citizens, the best broad market, plain vanilla ETFs for long-term investing can actually be outside the US.

Take the London stock exchange. It has quite a few UCITS ETFs, which are basically ETFs that are traded under European regulation.

The benefit of purchasing London-listed ETFs – which are domiciled in Ireland – is that dividends are taxed at a much lower rate.

Withholding tax for ETFs with an Ireland domicile is 15% while for any US-listed ETF (that pays out a dividend) it’s 30%.

For example, the iShares Core S&P 500 UCITS ETF (LSE: CSPX) listed in London reinvests your dividends for you. 

As a result, your return from the share price (over the long term) will be better than any US equivalent, such as the Vanguard S&P 500 ETF (NYSE: VOO).

Have a quick look at Google Finance between the two above – over, say, a five-year timeframe – to confirm that difference.

Hong Kong has issued a new security law bill that will mete out tougher jail terms for a variety of offences.

It has been urged to pass “at full speed” by Chief Executive John Lee. With geopolitics becoming a more incendiary issue as China and Hong Kong integrate more closely, Hong Kong’s government has used the little opposition it faces to table the bill.

Unlike in 2003, when mass protests called off the attempt to introduce “Article 23”, this bill is nearly certain not to see any protests.