Bespoke: Worries over China and Apple overblown

“The folks at Bespoke Investment Group today weigh in on the apparent ‘linkage’ between China‘s troubled stock market, and currency, and Apple, a topic of substantial discussion the past couple days following China’s surprise devaluation of its currency, after weeks of Chinese stock turmoil,” Tiernan Ray reports for Barron’s.

Ray reports, “Regarding the link between Chinese stock performance, in China’s benchmark Shanghai Composite, and Apple stock, there appears to be little if any linkage in the trading patterns, they write: ‘In the case of any relationship between AAPL stock and the Shanghai Composite, we would start off by saying there is little connection […] AAPL’s performance over the last three years has very little in common with the Shanghai Composite. From late 2012 through mid 2013, AAPL was declining while Chinese stocks rallied. Then, in mid 2013, AAPL rallied while Chinese stocks traded in a sideways range. Late last year when Chinese stocks began to surge, AAPL had already been trending higher for over a year. If anything, the rate of change in AAPL started to slow as Chinese stocks surged.'”

Read more in the full article here.

MacDailyNews Take:

We remain extremely bullish on China and we’re continuing to invest. Nothing that’s happened has changed our fundamental view that China will be Apple’s largest market at some point in the future. It’s true, as you point out, that the equity markets have recently been volatile. This could create some speed bumps in the near term. But to put it in context, which I think is important, despite that volatility in the Chinese market, they’re still up 90% over the last year, and they’re up 20% year-to-date, and so these kind of numbers are numbers I think all of us would love.

Also, the stock market participation among Chinese household is fairly narrow. And the stock ownership is very concentrated in a few people who put what appears to be a smaller portion of their wealth in the market than we might. And so I think generally this has been, at least as we see it, maybe it’s not true for other businesses, that this worry is probably overstated. And so we’re not changing anything. We have the pedal to the metal on getting to 40 stores mid next year. As we had talked about before, we’re continuing to expand the indirect channel as well.

As you point out, and I think this is a major point that many people miss, the LTE penetration in China is only at 12%. And China doesn’t possess the level of fiber that some other countries do, and so in order to get the great video performance, et cetera, raising that penetration is really great. I think that really plays to an incredible smartphone future there.

Also, and I can’t underestimate – I can’t overstate this. The rise of the middle class there is continuing, and it is transforming China. McKinsey, I saw a recent study from McKinsey that’s projecting the upper middle class to grow from 14% to 54% of households over the ten-year period from 2012 to 2022. So we’re within that period at this moment, and you can see for all of us that travel there so much, with every trip you can see this occurring. And so I think we would be foolish to change our plans. I think China is a fantastic geography with an incredible unprecedented level of opportunity there. And we’re going to be there. — Apple CEO Tim Cook, July 21, 2015

Why China’s yuan devaluation doesn’t hurt Apple – August 12, 2015
Here’s what clobbered Apple Tuesday – August 12, 2015
Stock futures slump as China further devalues the yuan – August 12, 2015
Apple poised for pain – and gain – on China’s move to devalue the yuan – August 11, 2015
Morgan Stanley: This is your chance to buy shares of Apple at a discount – August 6, 2015


  1. Why do they even try to convince investors that Apple is OK in China? It’s not going to stop investors from selling off Apple and buying some other stock. I think even lousy companies can provide better share gains than Apple can this year. Almost the entire stock market is outperforming Apple this year. All Apple can do is to continue to sell lots of products and make itself wealthy whether the shareholders see any gains or not. As long as Apple continues to increase dividends I’ll consider myself lucky.

    Apple appears to be clueless how to convince Wall Street it has any future growth at all. I remember a couple of years back how Wall Street was saying how Apple needed China so badly. Now Wall Street is saying China is a huge liability to Apple. That’s a continual no-win scenario for Apple shareholders.

    If Wall Street only believes Apple can fail, then what’s the point of new potential investors owning AAPL. They might as well buy stocks they’re being told can’t possibly fail which certainly makes a lot of financial sense. I just don’t know how Apple got into such a poor situation with Wall Street. Maybe Tim Cook has made too many enemies. When I think of that $120 billion thrown down the toilet for stock repurchases it makes me sick to my stomach. Spending good money for a company to lose value is just stupid and that’s what Apple appears to have done.

    1. Because WS shysters have always hated Jobs who had total disdain for them. Jobs would never have agreed to buy backs.

      And to think that APPLE management has given billions to WS thru the buy backs, for literally nothing. Buy backs for most companies are a scam to hide options grants that would have diluted shares. If they really want align management with shareholders the should just have given dividends. $130 billion would be the equivalent of 25% return to a stockholder given current pops.That would be 30 times what one would have earned from a bank and the stock would probably be twice the value (that would still make it a 12% return). At this rate even Buffet would have bought in. I would hope Cook and company would be different but the WS shysters allow most companies to reprice the options plus turn a blind eye to loan forgiveness grants. In this way again no alignment with shareholders.

      The buy backs are the biggest scam costing Apple shareholders while WS laughs. Let me sum this up assuming $40 billion in buy backs.
      Loan $40 billion WS fees (30 basis points): $120 million
      Buy shares transaction fees: (30 basis points): $120 million
      Sell shares transaction fees: (30 basis points): $120 million
      Based on the fact that buy backs are negotiated prices and past history (Q average pps was 124 while buy back price was 134) WS has another spread of 10/124 = .08 x $40 billion = $3.2 billion.
      Total WS: $3.5 billion while Apple share holders loss in equity $150 billion from price manipulation. Mind you this is not counting the options sales that WS can arbitrage based on the negotiated price of the buyback.
      Cook is so naive. They are after him. They want another ex-soda salesman like in there. Already other carnival barkers are after that position. They are salivating about the chance to get a piece of the cash hoard.
      Why do you think one company is trying to say that they are in the forefront of car and battery technology? Their genius of a CEO will then be first in line for replacing Cook. Apple’s skunk works is partly about cars and batteries. Cook will be/is being stabbed in the back by apple’sfinancial folks and the board of directors.
      Now if the buy backs were instead pure dividends the stock would not have lost its value. The clamor will rise for Cook’s replacement.
      With another ex-soda salesman like person in place, apple’s technology will be shared with others plus ARMwill be replaced by intel. You can iCal this.
      It is both comic and tragic that Cook has given WS the funding/means to do what they have always wanted to do to Jobs. I really miss the guy. He was the only one who could stand up to these shysters.

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