Contagion in China

30.11.2022 – Wall Street and the world’s stock markets have not yet reacted well to the events in China. But that could soon be over. Apple, at least, is already feeling the consequences of the drastic zero-covid policy.

A small harbinger for possible upheavals due to the unrest in China was recently the Apple share. It has not followed the rise in the SPX since October, as you can see in the daily chart.

 

Source: Bernstein Bank GmbH

In the past few days, Apple has had to watch a real riot at its factory in Zhengzhou. Newly hired workers complained that management had not kept promises. The campus has been plagued for weeks by repeated lockdowns and unrest among workers. Thousands left the factory in October because food became scarce. They were replaced by new employees who were now rebelling against wage and quarantine practices.

Turmoil at Foxconn
Meanwhile, protests at Apple supplier Foxconn are having a massive impact on Apple’s iPhone business: Apparently, six million fewer iPhone Pro models will be produced in 2022 than planned. For Apple, a lot now depends on how quickly the Taiwanese factory operator Foxconn gets the employees back into production after the violent protests. And on the other hand, there is the question of when Apple will be able to outsource production, for example to India.

Daniel Ives, managing director at Wedbush Securities, told CNN Business, “Every week of this shutdown and unrest we estimate is costing Apple roughly $1 billion a week in lost iPhone sales. Now roughly 5% of iPhone 14 sales are likely off the table due to these brutal shutdowns in China.” Maybe Apple is just the first to catch the Chinese disease.

Kryptonite from China

Meanwhile, unrest in the People’s Republic has spread – many Chinese are fed up with the zero-covid policy. Even President Xi Jinping has been openly criticized in recent days. As usual, the Communists are reacting with draconian measures.

The first critical voices can be heard outside the mainstream. Thus, the rather unknown warned against the burgeoning uncertainty – it is kryptonite for the bull market, which was recently so seemingly invincible. Chinese authorities could enforce their covid measures with drastic new lockdowns, which could threaten production and global trade. Specifically, they said, “Covid lockdowns have the potential to topple various supply-chain dominoes, and by weakening economic activity, they also have the potential to topple dominoes in the populace’s understanding of the social contract between citizens and the state.” In other words, breaking the silent Chinese social contract – prosperity in exchange for keeping still – could have nasty political and economic consequences.

Our conclusion: a new Corona wave from China plus an uprising in the Middle Kingdom could trigger a small sell-off wave for world stock markets. So keep an eye on the real-time news – Bernstein Bank wishes successful trades and investments!

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You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.