Daily Posts

Apple’s Timing Explained

Hope all is well!

Apple CEO Tim Cook threw China under the preverbal bus in explaining the company’s woes. Unfortunately, there is little evidence that China’s economic slowdown is the primary cause of Apple’s woes. In fact, Cook’s own comments point to a multitude of factors such as a strong dollar, success of the iWatch etc.  As for his China comments, yes China’s GDP percentage is slowing though Chinese consumers thus far have hung in there.

  • China’s Non-manufacturing PMI increased to 53.8 in December from November’s 53.4
  • Retail Sales in November +8.1% Year over Year


The reality is Apple’s phones are expensive relative to local brands and when combined with a lack of significant upgrades, iPhones are simply not resonating with Chinese consumers. Local players like Huawei and Xiaomi have gained market share though there are a multitude of other companies such as Oppo and Vivo that gaining market share with great phones at low price points. One broker noted that while smart phone sales declined 10% to 34mm in November, Apple’s volumes lost 22%. The broker didn’t source their data but Q3 and YTD data from IDC show Apple has been coming under pressure for years in China and broader Asia.  Apples lack of success in India is for the same reason. Here in the US, the lack of a significant competitor other than Samsung and historical phone carrier subsidies has protected Apple. I suspect Apple’s Q4 will show declines here in the US which will likely lead to a big dividend payout and/or ramp up of their buyback program.



Hang Seng jumped higher in the morning session on PBOC guidance to banks on freeing up their Required Reserve Ratios to support small medium enterprise loans. Apples’ warning and poor sentiment weighed in the afternoon session as the index lost -0.26% with 22 advancers and 25 decliners on below 52 week average volumes. AIA’s loss of -1.75% accounted for -39 of the index’s 65 point decline. Geely Auto lost -8.17% following Morgan Stanley’s price and rating cut worth 16 index points. Apple suppliers Sunny Optical and AAC Technology unsurprisingly lost -6.76% and -5.41%. Sunny hit a 52 week low today at HK $7.83 versus the 52 week high of HK $22. AAC also hit a 52 week low today of HK $5.24 versus a 52 week high of HK$ 20.48. Within the MSCI China All Shares’ HK stocks, energy gained +1.42% on crude’s recent rebound though healthcare had another rough day -4.08% followed by consumer discretionary -3.05% due to Geely while Sunny and AAC pulled tech down -2.68%. Southbound Connect volumes were moderate with sellers outpacing buyers nearly 2 to 1. Worth pointing out that Hang Seng managed to stay above the 25,000 level.



Shanghai & Shenzhen also gave up morning gains to ease -0.04% and -0.8% on volume that increased 11% day over day but well below the 52 week average. Decliners outpaced advancers though not by large a significant margin. Within the MSCI China All Shares’ mainland stocks, financials managed to gain +0.92% though healthcare was hit -2.89%, staples -2.35% and discretionary off -1.58%. Recent winners all experienced profit taking as healthcare’s comeback was short lived though food and beverage also reversed. Defense stocks were higher on President Xi’s speech on Taiwan adopting a one country two systems policy like Hong Kong. Northbound Connect volumes were moderate with buyers outpacing sellers.



Baidu was higher yesterday on news that it would generate more than RMB 100B in 2018.  



Anyone notice Japanese 10 year Treasury bonds have negative yields again?

  • CNY 6.87
  • Yield on 1 Day Chinese Gov’t Bond 1.44%
  • Yield on 10 Year Chinese Gov’t Bond 3.19%
  • Yield on 10 Year China Development Bank Bond 3.63%

 


Commodities were mixed with Copper off more than 1%