Why Nike Stock Just Crashed

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What happened

Shares of the sportswear giant Nike (NYSE: NKE) took a hit in Thursday morning trading, falling 4.7% through 11:30 a.m. EDT, after Chinese state media appeared to encourage consumers to boycott foreign brands that have in the past criticized its use of forced labor by Muslim Uyghurs in the country’s Xinjiang. Region.

So what

Online, it drew a slew of criticism from companies ranging from Hennes & Mauritz at adidas to Nike, all of whom have said at one time or another that they do not source products or raw materials from Xinjiang. The three companies are part of the Better Cotton Initiative trade group, which Reuters describes as promoting “sustainable cotton production” and which Reuters says has avoided buying cotton from Xinjiang, “citing rights concerns of man”.

Chinese consumers posted comments online such as “if you boycott Xinjiang cotton, we will boycott you”. The Communist Youth League accused Nike and its peers of wanting to “make money in China while spreading false rumors and boycotting Xinjiang cotton”. The People’s Liberation Army called the companies “ignorant and arrogant” and the Chinese Foreign Ministry accused them of spreading “malicious lies”.

Image source: Getty Images.

Now what

Clearly, the rhetoric is heating up, which is making investors understandably nervous – perhaps for good reason. Beyond mere words on the Internet, the Chinese government-sanctioned attack apparently convinced Ali Baba remove H&M products, for example, from its Tmall shopping platform.

The risk of Nike being next cannot be ignored. And considering that Nike depends on China for 18% of its annual sales right now (according to data from S&P Global Market Intelligence), this is a situation that could get worse before it gets better.

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Rich Smith has no position in the stocks mentioned. The Motley Fool owns shares and recommends Alibaba Group Holding Ltd. and Nike. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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