“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.'”
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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
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