Huawei is the largest manufacturer of telecommunications equipment in the world. The company has been in the news lately -- and not for great reasons. Amid fears that its products could be used by China's military and intelligence communities, sales by Huawei have been totally or partially blocked in the United States, European Union, Japan, Australia, New Zealand, and Canada.
Find out more about Huawei here -- if you can invest in it, when it might be publicly traded, if it's profitable, and other ways to gain exposure to the company.
What is Huawei?
Huawei is a major global conglomerate that manufactures telecommunications equipment and consumer electronics. It became the largest telecom equipment manufacturer in the world in 2012 and (briefly) the biggest manufacturer of smartphones in 2020. It's also a major player in the buildout of next-generation high-speed 5G networks.
The company has enjoyed steady growth since its 1987 founding by a former deputy director of the People’s Liberation Army engineering corps, boosted by an estimated $46 billion in support by the Chinese government. It became a leading provider of telecommunications networks in the Middle East and sub-Saharan Africa in the late 1990s, and its foreign sales topped domestic orders in 2005.
Although the Chinese-based company would appear attractive to investors who believe its reach and products will continue to grow, it's become problematic for a major reason. A law passed in 2017 requires it to provide intelligence to the Chinese government. As a result, it's been banned from doing business in several countries, including the United States, Australia, Japan, and the United Kingdom.
The U.S. has also prevented sales of the advanced chips necessary for 5G networks to the company, and several countries have chosen competitors such as Ericsson (ERIC +1.00%) or Nokia (NOK +1.31%) to build their 5G networks because of concerns over the potential for spying. Its smartphone business was launched in 2009 and passed Samsung (OTC:SSNL.F) as the world's top seller barely a decade later, but sanctions forced Huawei to sell off its smartphone business in November 2020.
ETFs with exposure to Huawei
An exchange-traded fund (ETF) can be a safer investment than individual stocks since it's an asset that distributes risk across several assets. ETFs also tend to have lower fees than mutual funds and can be easier to buy and trade.
Since Huawei isn't publicly traded, it's not included in any ETFs. Investors who want exposure to the Chinese company, however, may benefit from putting money into funds that follow the same trends as Huawei. Since there's a broad array of ETFs, investors have multiple pathways, including ETFs that are focused on China, telecommunications, or 5G networks, among others. Here are three that might be worth considering:
Should you invest in Huawei?
Since Huawei isn't publicly traded, it's not possible to buy shares in it. And even if and when the company launches an IPO, investors would need to be aware of potential pitfalls. Because of concerns about the potential for Chinese spying, the company's growth for the foreseeable future may be limited to China, the Middle East, and Africa.
In addition, Huawei has been operating in an extremely competitive environment -- even before its venture into a self-driving car market that's been dominated by titans like Alphabet (GOOG +0.62%)(GOOGL +0.66%), Nvidia, and Tesla (TSLA +1.04%). All things considered, Huawei likely carries more risks than rewards for investors.
The bottom line
Weak consumer consumption and slowing property investment have caused problems for the Chinese economy, and a trade war with the United States isn't helping. Increasingly, China is viewed as a competitor rather than a customer. The economic woes of the world's second-most-populous country combined with suspicion over Huawei's motives make the company an extremely risky bet if and when the company goes public.
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