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!
__________________________________________________________________________________________
The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7